Securities and Exchange Commission
Washington, D.C. 20549
_______________
Second Amendment to
Form 10
______________
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
PACIFIC WEBWORKS, INC.
(Exact name of registrant as specified in its charter)
NEVADA 87-0627910
(State of incorporation) (I. R. S. Employer Identification No.)
180 South 300 West, Suite 400
Salt Lake City, Utah 84101
(801) 578-9020
(Address and telephone number of registrant's principal executive offices and
principal place of business)
Securities to be registered pursuant to Section 12(b) of the Act:
None
_______________________________________________________
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
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BUSINESS
The following description of Pacific WebWorks' business should be read
in conjunction with the information included elsewhere in this registration
statement. This section contains certain forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from the
results discussed in the forward-looking statements as a result of certain of
the risk factors set forth below and elsewhere in this registration statement.
Our Business. We are primarily an engineering and management company
which develops and sells business software technology for the Internet. We
provide software tools for e-commerce, including shopping carts, point of sale,
lead generation, lead distribution, security methods (including encryption), and
search engine technologies. Our products allow businesses to build, manage, and
maintain their own websites, sell products, generate leads, distribute
information, and gain intelligence about their website visitors. We believe that
our products provide business owners with access to such services for a fraction
of the costs typically incurred by large companies for similar services.
Our plans for the last six months of fiscal 1999 are to focus on
development of our sales channels. We will be initiating targeted direct mail
campaigns, business to business seminars in selected cities, and radio and
telemarketing in targeted cities. Our marketing efforts will target both
customers for our products and independent sales organizations to expand our
sales exposure at a projected cost to us of approximately $150,000 through the
end of 1999.
Our operating plans for our next fiscal year call for enhancing and
marketing our initial product (Visual Webtools), establishing multiple
distribution channels to eliminate overdependence on any one channel or
distributor, supporting our newly acquired customers through both design
services and question and answer assistance, and continuing research and
development on future projects to be released in fiscal year 2000.
Our Market. We market our products to small and medium-sized businesses
which want total, one-stop solutions to Internet advertising, marketing, and
sales concerns. Our typical "target" customers are businesses which would prefer
to invest in technologies which allow them to develop functional, interactive
Internet websites, rather than hiring information systems employees to develop
such websites. The Internet is an interactive worldwide network of computers and
data systems which allows users to retrieve data, purchase products, send and
receive communications, and purchase or provide services. The Internet's use has
grown substantially since it was first commercially introduced in the early
1990's. The increase in the number of users has resulted in a rapid increase in
the numbers of advertisers, products, and services on the Internet. For example,
International Data Corporation (IDC) estimates that the number of Internet users
who will make purchases over the internet will grow from approximately 31
million in 1998 to approximately 183 million by 2003, and that the amount of
commerce conducted over the World Wide Web will exceed $1 trillion by 2003. See
"Internet Commerce Will Rocket to More than $1 Trillion by 2003, According to
IDC" at http://www.idc.com/Data/Internet/content/NET062899PR.htm.
The Internet software market is relatively large and continuing to
expand. In our opinion, the vast majority of businesses with successful web
strategies are those which have the financial resources to frequently update and
re-design their websites. Such businesses either hire and retain "information
systems" employees to develop, support, and maintain their websites, or
alternatively purchase Internet services from multiple parties, integrate such
services, and gather or purchase information on their markets to facilitate
website updates. Our market, by contrast, consists of small to medium-sized
businesses which desire the capability to quickly re-design their websites
without incurring substantial costs or relying upon additional employees or
multiple vendors. We believe that our products provide small and medium-sized
businesses with such flexibility, allowing businesses complete control of their
websites.
Our Product. We have developed software technology which we market
under the name Visual WebTools(TM). Visual WebTools(TM) allows businesses to
create and maintain websites. We believe that Visual Webtools(TM) is powerful,
yet easy and intuitive to use; it allows a small business to quickly and easily
create a website on the Internet, list itself with the major search engines, set
up e-mail, and register a domain name. We also believe that VisualWeb Tools(TM)
provides all the tools needed to edit and maintain a website from any
Internet-capable computer. It allows a user to create an online store front,
generate sales leads, process credit cards, communicate
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with site visitors, and collect statistical information about who visits the
website and what they do while they are there. It allows a business to create,
manage, and maintain every aspect of its website at all times. In our opinion
this functionality, combined with our easy to use visual interface, provides a
point-and-click total Internet business solution for approximately three
thousand dollars per year.
Visual WebTools(TM) incorporates the following features:
WebWizard. WebWizard allows businesses to quickly and easily create,
update, modify, or enhance their websites. Changes can be made 24 hours a day, 7
days a week from anyplace in the world with an Internet terminal. WebWizard
includes an easy to use but powerful preview interface which is referred to in
the industry as "WYSIWYG" (What You See Is What You Get) which uses familiar
"drag and drop" functions and which allows businesses to make website changes
instantaneously. Changes are updated automatically and placed online within
minutes. WebWizard gives businesses the ability to manipulate their websites'
layout, colors, and content, and to move, resize, and cut and paste text,
graphics, and tables. WebWizard also gives businesses a library of hundreds of
graphics to use throughout the website, and the ability to upload graphics or
files from a local hard drive directly into the website.
WebShopper. WebShopper allows businesses to add "electronic
storefronts" to their websites. We assist businesses in setting up merchant
accounts and in facilitating secure credit card transactions through a
collaboration with joint venture partners. WebShopper also provides a
customizable product database. A business's products and all of its variables,
such as price, color and size, can be entered into a password-protected product
database, which can be updated or edited at any time. Customizable price and
shipping modifiers, receipt options, sale flagging, product option variables and
tax calculations are also available.
WebChannels. WebChannels allows businesses to send e-mail to multiple
clients simultaneously, creating marketing channels directly to customers.
Businesses can send announcements, sales information, product updates,
promotions, newsletters, jokes, or any other correspondence to clients at any
time. WebChannels also allows subscribers to add or remove themselves from the
automated e-mail database.
WebProfiler. WebProfiler allows businesses to gather demographics on
site visitors by creating custom questionnaires which provide direct feedback
from site visitors. With WebProfiler, businesses can obtain information from
target audiences, including, for example, levels of customer satisfaction or
dissatisfaction and customer preferences with regard to new products or
services. We believe that WebProfiler assists businesses in obtaining the
information necessary to improve customer relations, improve products, run
surveys and product specials, and gather additional information.
WebStats. WebStats allows businesses to monitor website visits. It
creates detailed reports about visits to their websites. We believe such reports
may assist businesses in determining the effectiveness of changes to their
websites and identifying the pages on their sites which draw the most interest.
WebStats keeps a detailed two-year history of visits to and activity within our
subscribers' websites, and can generate detailed reports of site activity. For
example, it can generate reports which show year-long sales trends, identify
product purchasers, or track the effectiveness of sales and promotions during
specific time periods or from specific locations. WebStats retains this
information in database format. We intend to develop future versions of WebStats
which will allow our customers to download and manipulate such information.
WebWizard and WebShopper are our basic products and come in three
progressive versions, including "Retail," "Express," and "Pro." The "Express"
and "Pro" versions provide additional product features and support options to
the business. WebStats, WebProfiler, and WebChannels are available to our
customers for an additional license fee.
Sales and Marketing. We do not believe that our competitors are
effectively targeting our market niche: a totally Internet based, end-to-end
business solution for small and medium sized businesses. We believe that our
products will allow businesses to generate leads, sell products, run sales
promotions, capture demographic information about website visitors, communicate
with website visitors, and obtain intelligent information about who is visiting
their websites and what they are doing while they are there. Our products allow
our customers to stay in complete control of their websites and provide tools
which can facilitate a successful internet experience for them.
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We market and sell our products through re-seller channels, our
internal sales force, outside sales agents, and strategic partners. We sell our
products to resellers at wholesale, who then mark the products up and sell them
at retail. As of July 15, 1999, we have entered into WebTools Reseller
Agreements with six companies. Each end user must sign a purchase agreement with
the reseller which the reseller must in turn provide to us. We then provide
software to the resellers' own end users which allows such users to create
Internet projects. We provide the initial reseller with training in the use of
the software, but the reseller must provide all product support for the
reseller's end users. The reseller is an independent contractor and is obligated
to pay the amounts due under the agreement even if it does not receive payments
from its end user. Currently, nearly 42% of our sales are originated through our
outside sales agents, while our reseller channels account for approximately 32%
of our sales. The balance of our sales are originated by our internal sales
force.
One of our resellers and two of our independent sales organizations
currently account for more than ten percent of our revenues. US Merchant
Systems, a reseller, supplies us with marketing expertise and merchant accounts
with our customers, and accounted for approximately $25,100, or 32% of our
revenue, during our two most recent quarters. While we entered into a new
Strategic Marketing Agreement with US Merchant Systems on August 30, 1999, the
loss of our relationship with US Merchant Systems would create an immediate loss
of revenue for us and may have a material adverse effect on our operations.
Dillard Internet Consulting, an independent sales organization, accounted for
approximately $7,500,or approximately 10% of our revenue of our revenue, during
our two most recent fiscal quarters. Global Internet Marketing, also an
independent sales organization, accounted for $14,700, or approximately 19%, of
our revenue this year. The loss of either of these central independent sales
organizations would immediately harm our revenues and may have a material
adverse effect on our business. However, we believe that based on the large
number of sales organizations in the market, we would be able to replace each of
these partners in the event our relationships are terminated, although this may
adversely effect our operations and revenues.
We have released and sold WebWizard Pro since late November, 1998, and
WebWizard Express and WebWizard Retail since the first quarter of 1999. Sales
have been conducted primarily by two of our resellers. During 1997 we had 41
clients, none of which accounted for more than 5% of our gross revenue. During
1998 we had a total client base of 85. Four clients each accounted for more than
5% of our gross revenues for that year. As of the second quarter of 1999, we
have continued to increase our client base to several hundred. None of our
clients have provided more than 5% of our gross revenues in 1999.
We believe we may be able to develop a substantial presence in our
target market through a combination of marketing strategy, unique proprietary
technology, technical expertise, and early entry into our target market. We have
also developed a trial version of Visual WebTools(TM), which can be provided to
a business for evaluation purposes free of charge. Our products will allow a
business to create, operate, and maintain a website for an initial one-year
term, after which our customer may maintain its license by paying a monthly
license fee of approximately 6% of the initial purchase price. We are also
pursuing a national advertising campaign which will include television, radio,
and print media.
It is our opinion that in the past, businesses which have attempted to
maintain interactive websites and conduct business on the Internet have either
developed technical expertise themselves, paid employees to create and maintain
their websites, or retained contract "web professionals" to do so. We believe
that Visual WebTools(TM) will allow small businesses, at a relatively small
cost, to participate in Internet commerce by creating and managing their own
Internet storefronts.
Product Development. We acquired a large amount of source code from
Innovative Research and Animated Design, Inc. ("IRAD") in June of 1997. IRAD
originally developed this technology, which is the underlying technology from
which we program. We believe that this code base provides us with a significant
market advantage with advancements in the areas of Internet business
technologies, including 3D animation and search engine technologies. We intend
to incorporate these technologies into future versions of Visual WebTools(TM).
We announced the release of WebWizard 2.0 in February 1999. WebWizard
2.0 enhances WebWizard, which is Visual WebTools(TM)' base product. WebWizard
2.0 simplifies the tasks of creating and maintaining websites. It incorporates
Microsoft's ActiveX components directly into the interface, making WebWizard as
easy to use as a word processor. The new WebWizard 2.0 supports online "drag and
drop" functions for editing images, tables, and text. WebWizard 2.0 also
supports online text editing, as well as infinite-level "undo" and "redo"
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functions. An extensive table editor has been added which allows simple resizing
and quick editing of tables. The new import feature will allow current and older
websites to be converted into the Visual WebTools(TM) environment quickly and
easily. WebWizard 2.0 also includes an updated graphics and animation library,
enhanced navigation support, and increased security.
In February 1999, we also released WebShopper Pro, which includes
support for merchant account functionality, real-time Internet credit card and
personal check settlement, and fraud prevention features. WebShopper Pro
supports and accepts all major credit cards and optional electronic checks on a
real-time basis. We intend to expand the features of the Visual WebTools(TM)
family during the remainder of 1999 by adding 3D animation, new site layout
support, background images, additional graphic libraries, private office
features such as document sharing, and a shopping mall.
We released Visual WebTools(TM) 3.0 on August 1, 1999. WebWizard 3.0
includes multiple features designed to make our product more powerful and easier
to use. These features include scriplets (an embedded code feature which
enhances the effect and appearance of a web page), frames (a function which
allows a user to display multiple pages or portions of pages at one time on a
computer screen), and easier domain registration. Webshopper 3.0 allows for
products to be included in Mainstreetsquare.com(TM).
Through June, 1999, we spent $506,132 in cash, of which approximately
60% was devoted to engineering costs, including research and development
expenses. During 1998 and 1997, we spent approximately $235,000 and $105,000 in
cash, respectively, of which approximately 60% was devoted to engineering costs,
including research and development expenses. Such costs are passed on to
purchasers in the cost of the product.
Material Contracts. We are a party to the following material contracts:
In January, 1998, we entered into an agreement with Electric Lightwave,
Inc. for telecommunications, facilities, and Internet access. We currently pay
$1,725.00 per month for such service. The contract is scheduled to expire
December 31, 2001. We believe that we will be able to extend this contract on
terms which are acceptable to us, but have no assurances that we can do so.
However, we believe that we will be able to enter a new contract with a
different service provider if the contract is not extended.
In April of 1998 we entered into a Development, License, and Service
Agreement with American Home Business Association (the "American Home") for
development of a website for American Home. We agreed to create a website,
customize our software, prepare a first version of the website, and put a
company database on the Internet. We granted an exclusive license to American
Home to use our search engine, "IQuest," for use only within the Internet Home
Business Directory Industry. American Home pays us a $10,000 royalty fee per
year. We provide maintenance for IQuest for a monthly fee of $250. We allow Home
Business to use 4% of our current internet access capacity. We also provide
enhancements to the software which we own. The agreement had a term of two
years. On July 31, 1999, American Home and Pacific Webworks agreed to terminate
this contract. American Home and Pacific WebWorks disagreed on each party's
obligations under the agreement, and the companies mutually agreed to dissolve
their contract for a fee of $2000 paid to Pacific Webworks by American Home on
July 31, 1999.
In February of 1999, we entered into an agreement with U.S. Merchant
Systems, Inc. and IntelliPay, Inc., both located in Newark, California. U.S.
Merchant Systems, Inc. provides merchant accounts to our clients. IntelliPay
provides software which enables merchant accounts to communicate with Internet
e-commerce applications. We integrated a merchant account and transaction
processing which allows purchasers of Visual WebTools(TM) to accept all major
credit cards and personal checks at point of sale from their website. The term
of this agreement is one year from the date of execution and shall automatically
renew each successive year thereafter, unless cancelled in writing. We are also
leveraging a relationship with a provider of Internet factoring, which will
allow customers to make monthly payments on negotiated terms.
Outstanding Notes. On July 21, 1999, we executed a promissory note in
the amount of $250,000.00 payable to the order of Capital Communications. The
note is secured by our accounts receivable. The note is due on or before July
31, 2000 and includes principal and interest. In the case of default on any
payment , the note and all accrued interest shall, at the holder's option,
become immediately due and payable. Interest is bearing on the principal amount
of the note at a rate of 10% per annum.
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Corporate Development. Asphalt Associates, Inc. was incorporated in the
state of Nevada on May 18, 1987. Asphalt Associates never established commercial
business operations. On January 11, 1999 Asphalt Associates merged with Utah
WebWorks, Inc., a Utah corporation (the "Utah WebWorks"). Utah WebWorks, the
accounting acquirer, was organized on April 10, 1997. In conjunction with the
merger, Asphalt Associates changed its name to Pacific WebWorks, Inc. Utah
WebWorks owned a significant portion of the software technology which we
currently use, while Asphalt Associates held approximately $1 million dollars in
cash which could be used for the marketing and improvement of the Utah WebWork's
technology. Each of the companies believed that by combining their assets, the
newly merged company would be able to take advantage of the combination of the
assets more efficiently than either could do alone. In connection with the
merger, the shareholders of Asphalt Associates retained one-half of the issued
and outstanding capital stock of the merged corporation, while the shareholders
of Utah WebWorks acquired the remaining one-half of the issued and outstanding
capital stock of the merged corporation.
Trademark, Licenses and Intellectual Property. On October 9, 1998, Utah
WebWorks filed a trademark application for Visual WebTools(TM) which we acquired
and became responsible for upon our merger with Utah Webworks. In December of
1998 the United States Patent and Trademark Office assigned Serial No. 567,136
to such mark. The trademark is currently pending. On July 9, 1999, we filed a
Trademark application for Mainstreetsquare.com(TM), Cyberhaggle(TM), and
Pricehunter(TM), all features of the online mall currently in development. Our
success will depend, in part, on our ability to obtain and protect our trademark
and trade secrets and operate without infringing upon the proprietary rights of
others in the United States and other countries. If we were to become involved
in a dispute regarding our intellectual property, it could become necessary for
us to participate in interference proceedings before the United States Patent
and Trademark Office to determine whether we have a valid claim to the rights
involved. We could also be forced to seek a judicial determination concerning
the rights in question. Such proceedings could be costly and time consuming,
even if we were to eventually prevail. Should we not prevail, we could be forced
to pay significant damages, obtain a license to the technology in question, or
stop marketing one or more of our products.
All of our technology was developed internally by our engineers and by
the engineers of Utah Webworks. Our products do not rely on any third party
technology, although we have decided to include as an upgrade to our technology
features developed by Intellipay and U.S. Merchant Systems.
We also rely upon trade secrets, proprietary know-how, and
confidentiality provisions in agreements with employees, consultants, and
resellers to protect our intellectual property rights. There are risks that
these other parties may not comply with the terms of their agreements with us,
and that we may not be able to adequately enforce our rights against such
parties.
We have adopted a policy of requiring our employees and resellers to
execute confidentiality agreements when they commence employment with us or
resell our products. These agreements generally provide that all confidential
information developed or made known to the employees or resellers during the
course of their relationships with us is to be kept confidential and not
disclosed to third parties, except under certain specific circumstances. In the
case of employees, the agreements also provide that all inventions conceived by
the employees in the course of their employment will be our exclusive property.
Employees. We currently employ 21 people, 20 of whom are full-time
employees and one of whom is part-time. Our employees are not presently covered
by any collective bargaining agreement. We believe that our relations with our
employees are good, and we have not experienced any work stoppages.
Reports to Security Holders. Following the effective date of this
registration statement, we will be required to comply with the reporting
requirements of the Securities Exchange Act of 1934 ( the "Exchange Act") and
will file annual, quarterly, and other reports with the Securities and Exchange
Commission (the "SEC"). We also will be subject to the proxy solicitation
requirements of the Exchange Act and, accordingly, will furnish an annual report
with audited financial statements to our stockholders. We currently use an
investor relations firm, Columbia Financial Group, and interested persons may
call at (888) 301-6271. Also, interested persons may visit our website at
http://www.pacificwebworks.com.
Available Information. Copies of this registration statement may be
inspected, without charge, at the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Denver Regional offices of the
SEC located at 1801 California Street, Suite 4800, Denver, Colorado 80202. The
public may obtain
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information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0300. Copies of this material also should be available through the
Internet by using the SEC's EDGAR Archive, the address of which is
http://www.sec.gov.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
An investment in our common stock is very risky. Potential investors
should carefully consider the factors discussed above, in addition to the
information contained in the remainder of this registration statement, before
purchasing our common stock. This registration statement contains
forward-looking statements that involve risks and uncertainties. Many factors,
including those described below, may cause actual results to differ materially
from anticipated results.
We have a limited operating history and we cannot be certain of future
progress or profitability. We were incorporated in 1987, but did not operate as
a business until 1997. We only recently started marketing our software products
through resellers. We may encounter financial, managerial, technological or
other difficulties as a result of our lack of operating history. Although we
anticipate that our operating revenue will increase in the future based upon the
continuing increases we have noted in our financial statements during our most
recent fiscal quarter, we cannot guarantee that our revenues will exceed our
operating expenses.
Our quarterly results could fluctuate and we cannot be certain that
future results will be similar to past results. We have consistently incurred
losses since our formation. As of June 30, 1999 our accumulated losses totaled
$723,948.83. We have financed ourselves through loans and sales of our
securities. During the coming year, we will have to seek additional equity or
debt financing from third parties to finance our operations, which may not be
available to us or on terms which are acceptable to us. Please refer to the
Liquidity and Capital Resources section on page 14 for a more detailed
description. We are not able to currently finance our operations through our
operations and generated revenues. Our operating results in the future may vary
significantly, depending on factors such as revenue from product sales and
license fees, announcements and launches of new products and services, market
acceptance of new and enhanced versions of Visual WebTools(TM) and related
products, changes in our operating expenses, changes in our business strategy,
and general economic factors. Our revenues will also be difficult to forecast
because the markets for our products and services are evolving and our revenues
in any period could be significantly affected by new product announcements or
launches by our competitors, as well as by our competitors' development of
alternative technologies. We do not believe that period-to-period comparisons of
our results of operations will necessarily provide investors with meaningful
data for the foreseeable future because of our lack of active operations in such
earlier periods.
Our industry is subject to rapid technological change with which we may
not be able to keep pace. Internet industries change rapidly. Accordingly, our
operating results will depend upon our ability to successfully compete. Our
ability to successfully compete, in turn, will depend upon a number of factors,
including our ability to successfully maintain and sell existing products, our
ability to conceive, develop, improve, and market new products, our ability to
identify and take advantage of emerging technological trends within its target
markets, and our ability to respond effectively to technological changes or new
product announcements by competitors. We believe that we will need to make
continuing significant expenditures for research and development in the future.
Risks exist that we may not be able to successfully develop new products or, if
we do, that such products may not be accepted by the market.
We are subject to intense competition and we may not be able to compete
successfully in the market. Our markets are new, competitive, and subject to
rapid technological change. We face competition in the overall Internet software
market, as well as in the website building market. We expect competition to
persist, increase, and intensify in the future as the markets for our products
and services continue to develop and as additional competitors enter our market.
Currently, in our estimation, few major competitors offer products
comparable to the Visual WebTools(TM) product family. We believe that "Yahoo!
Store(TM)" is our most significant competitor, with its brand name recognition
and significantly greater financial, technical, marketing, and managerial
resources. Yahoo! Store has significantly higher sales and customers than we do
and has entered into a significantly higher number of license agreements with
third parties than we have. Our success in our target market will depend upon
our ability to build name brand recognition and to provide cost-effective
products and services to our customers. We believe that our
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product provides a comparable service for a lower price than that provided by
Yahoo!Store(TM). In addition, because we have focused our efforts on small
businesses, including providing Internet tools which allow businesses to develop
their own Web sites, we believe that the generality of the Yahoo!Store(TM) may
be inadequately addressing potential customer needs and that we will be able to
address site development needs. However, we may be unable to compete effectively
with current and future competitors, including Yahoo! Store.
We depend on our management, which may leave us at any time. We depend
upon the efforts and abilities of our officers, directors, and certain key
employees, including the officers and directors listed on pages 17 and 18 under
the heading "Directors and Executive Officers." Should we lose the services of
one or more of these persons, such loss could have a material adverse effect on
our operations.
We depend upon our proprietary rights, none of which can be completely
safeguarded against infringement. Our ability to compete effectively will
depend, in part, upon our ability to protect our proprietary source code and
Visual WebTools(TM) through a combination of licenses and trade secrets.
Competition in our market is intense and our competitors may independently
develop or obtain patents on technologies that are substantially equivalent or
superior to those incorporated into Visual WebTools(TM).
Intellectual property rights, by their nature, are uncertain and
involve complex legal and factual questions. We may unknowingly infringe upon
the proprietary rights of others, thereby exposing us to significant liability
and/or damages. We are not aware of any third party intellectual property rights
which would prevent us from marketing and developing Visual WebTools(TM),
although such rights may exist. If we were to inadvertently infringe upon the
intellectual property of another party, we could be forced to seek a license to
such intellectual property rights, alter the products or processes so they no
longer infringe upon such rights, or engage in litigation. If we were required
to attempt to obtain a license to another party's proprietary rights, such
efforts would be expensive, and might be unsuccessful.
We also rely upon trade secrets with respect to our source code and
functionalities and other unpatented proprietary information in our product
development activities. To the extent we rely upon confidential information to
maintain our competitive position, other parties may independently develop the
same or similar information. We seek to protect trade secrets and proprietary
knowledge in part through confidentiality agreements with our employees,
resellers, and collaborators. Such agreements may not effectively prevent
disclosure of our confidential information and may not provide us with an
adequate remedy in the event of unauthorized disclosure of such information. If
employees or collaborators develop products independently that may be applicable
to our products under development, disputes may arise about ownership of
proprietary rights to those products or services. Protracted and costly
litigation could be necessary to enforce and determine the scope of our
proprietary rights. It would be impossible to predict whether such litigation
might be successful. Our failure to obtain patent and trade secret protection,
for any reason, could have a material adverse effect on our business, financial
position and results of operations.
We may need additional capital and be unable to raise it. We believe,
based on our current expenditure rate, that we will need additional financing by
the fall of 1999. Therefore, our success will depend upon our ability to access
equity capital markets and borrow on terms that are financially advantageous to
us. We rely upon revenues from resellers, license agreements, and product sales.
We may not be able to obtain additional funds on acceptable terms. If we fail to
obtain funds on acceptable terms, we might be forced to delay or abandon some or
all of our business plans, which could have a material adverse effect on us. If
we are unable to obtain additional capital, we may not have sufficient working
capital to develop products, finance acquisitions, pursue business
opportunities, or meet reporting requirements. If we borrow funds, we could be
forced to use a large portion of our cash reserves to repay principal and
interest on such funds. If we issue our securities for capital, the interests of
investors and shareholders could be diluted.
Our products are complex and may be subject to error complaints from
our customers. Visual WebTools(TM) is complex and may contain errors, defects,
and "bugs." We have detected such errors, defects, and bugs in the past and have
corrected them as quickly as possible. Correcting any defects or bugs we may
discover in the future may require us to make significant expenditures of
capital and other resources. Despite our continuing tests, users may find errors
or defects in Visual WebTools(TM) which could cause additional development costs
or result in the loss of (or delays in) the market acceptance of Visual
WebTools(TM). As of this date, we have no
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knowledge of any errors, defects, or bugs in our software nor have we
experienced any material adverse effect by reason of an error, defect or bug.
Our stock price is volatile and is not in our control. In recent years
the stock market in general, and the market for shares of high technology
Internet companies in particular, have each experienced extreme price
fluctuations. In many cases these fluctuations have been unrelated to the
operating performance of the affected companies. The trading price of our common
stock may be subject to extreme fluctuations in response to both business
related issues (such as quarterly variations in operating results, announcements
of new products developed by us, or announcements from our competitors) and
stock market-related influences (including, but not limited to, changes in
analysts' estimates, the presence or absence of short selling of our common
stock, and events affecting other companies which the market believes might
affect us).
We may have problems as a result of the year 2000 problem. We rely upon
computer systems, applications, and devices in operating and monitoring all of
the major aspects of our business, including financial systems (such as general
ledger, accounts payable, and payroll modules), customer service, networks,
telecommunications equipment, and developing and manufacturing end products. In
addition, we provide our services and products over the Internet, which is a
computer-based medium. Our internal systems may be materially affected by the
year 2000 problem. Even if our internal systems are not materially affected by
the year 2000 problem, we could be affected by such problems with the operations
of our suppliers, contractors, customers, or other persons or entities with
which we interact. Despite our efforts to minimize the potential impact of the
year 2000 problem on its internal systems and operations, we may suffer a
material disruption of our business as a result of this problem. This could have
a material adverse effect on us.
The future sale of common stock could pose investment risks, including
substantial dilution to our shareholders. The market price of our common stock
could drop as a result of sales of the common stock in the market after the
effective date of this registration statement, or the perception that such sales
could occur. These factors could also make it more difficult for us to raise
funds through future offerings of our common stock. There will be a total of
10,000,000 shares of common stock outstanding immediately after the Effective
Date. The common stock will be freely transferable without restriction or
further registration under the Securities Act of 1933 (the "Securities Act"),
except for any common stock held by our "affiliates," as defined in Rule 144
under the Securities Act. We also have 3,960,000 shares of common stock
outstanding that are freely transferrable without restriction under the
Securities Act. The remaining 6,040,000 shares of common stock outstanding will
be "restricted securities," as defined in Rule 144. The common stock may be sold
in the future without further registration under the Securities Act to the
extent such sales are permitted by Rule 144 or any other exemption under the
federal securities laws.
We have a short market history which does not provide our investors
with extensive information. There has not been a large public market for our
equity securities, and our common stock has traded on the over-the-counter
market only since January of 1999. We do not know the extent to which investor
interest in our stock will lead to the development of an active trading market
for such stock, or how liquid that market might be. Investors may be unable to
resell their common stock at or above the price they pay for the common stock.
We have not paid dividends. We have never paid a dividend on our common
stock. We intend to retain future earnings to finance our growth and development
and do not plan to pay cash dividends in the foreseeable future.
We have a new product in a developing market which may not work
properly. Visual WebTools(TM) is based on software technology which has been
used for approximately two years. We have refined Visual WebTools(TM) by adding
additional functions, including but not limited to e-commerce capabilities. Our
success will depend largely on its ability to further refine and continue to
develop Visual WebTools(TM) and other products. If Visual WebTools(TM) does not
achieve significant market acceptance and usage, we could suffer material
adverse effects in our business.
The primary markets for Visual WebTools(TM) have only recently begun to
develop and are rapidly evolving. As is typical of new and rapidly evolving
industries, demand for (and market acceptance of) products and services that
have been released recently or that are planned for future release are subject
to a high level of uncertainty. If Visual WebTools(TM) does not achieve market
acceptance, we could suffer material adverse effects.
<PAGE>
-10-
Our markets are highly dependent on the use of the Internet. A number
of critical issues concerning the commercial use of the Internet, including
security, reliability, capacity, taxation, costs, ease of use, access, quality
of service, and acceptance of advertising, remain unresolved and may retard the
growth of the Internet for commercial applications.
We will need to manage our growth, even if we grow quickly. We hope to
achieve rapid growth, both with respect to our sales and operations and with
respect to the number and complexity of our products. Several members of our key
management team only recently joined us. See "Directors and Executive Officers."
Our growth, coupled with the rapid evolution of our markets, has placed, and is
likely to continue to place, significant strains on our administrative,
operational, technical, and financial resources and increased demands on our
internal management systems, procedures, and controls. If we are unable to
manage our growth effectively, our business and our financial condition could
suffer material adverse effects.
We will be dependent upon license renewal which cannot be assured to
occur. We intend to provide small to medium-sized businesses with a relatively
inexpensive, easy-to-use product which will allow them to create and maintain
websites. We expect to derive revenues from user licenses and license renewals
and to increase the brand recognition of Visual WebTools(TM) among users through
such relationships. Our success in establishing Visual WebTools(TM) as a
recognized brand name and achieving its acceptance in the market will depend in
part on our ability to continually engineer and deliver new product technologies
and superior customer service, so that customers renew their licenses year after
year.
To date, none of our customers' licenses have been up for renewal. In
October 1999, our first Visual WebTools customer license will be up for renewal.
Our first customer has already committed to renew its license and purchase an
upgrade. All of our current contracts expire following the original one year
term. However, customers may continue to use the software upon the payment of
their hosting fees, which is due on a monthly basis. Failure to pay the monthly
fee will result in a discontinuance of the license.
We may be subject to increased regulations and may be exposed to
liability for information retrieved from the Internet. Other than the laws and
regulations applicable to businesses generally, we are aware of few laws and
regulations which expressly apply to access and commerce on the Internet. Due to
the increased popularity and use of the Internet, however, it is possible that
new laws and regulations may be adopted with respect to the Internet relating to
issues such as user privacy, pricing and characteristics, and content and
quality of products and services. For example, we may be subject to the
provisions of the Communications Decency Act, which if found to be
constitutional, could expose us to substantial liability. The adoption of any
such laws or regulations could retard the growth or the use of the Internet,
which could adversely affect the demand for our products and services. Such laws
or regulations could also result in significant additional costs and
technological challenges for us in complying with any mandatory requirements.
Further, several states have attempted to tax online retailers and service
providers, even when such parties have no physical presence in the state. The
federal government has imposed a three-year moratorium on taxation of Internet
commerce. We cannot predict what effect the lapse of this three-year period will
have on our business operations. In addition, plaintiffs have brought claims,
and sometimes obtained judgments, against online service providers for
defamation, negligence, copyright or trademark infringement, or under other
theories with respect to materials disseminated through those the Internet. We
may be subject to similar claims.
We may be subject to risks associated with global operations, including
fluctuating currency exchange rates and political instability. We do not
currently have any operations outside of the United States. However, Visual
WebTools(TM) is designed for national and international markets and we plan to
include translation and localization support. As a result, we may derive
substantial portions of its future revenues from customers outside the United
States. Our ability to expand products and services internationally will be
limited by the general acceptance of the Internet in other countries. In
addition, international operations are subject to a number of risks, including
costs of localizing products and services for international markets, dependence
on independent resellers, multiple and conflicting regulations regarding
communications, restrictions on use of data and internet access, longer payment
cycles, unexpected changes in regulatory environments, import and export
restrictions and tariffs, difficulties in staffing and managing international
operations, greater difficulty or delay in accounts receivable collection,
potentially adverse recessionary environments and economies outside the United
States, and political and economic instability. Furthermore, we expect that our
export sales will be denominated predominately in United States dollars.
Therefore, an increase in the value of the United States dollar relative to
other currencies could make our products and services more expensive and
potentially less competitive in international markets.
<PAGE>
-11-
None of our shareholders is subject to a lock-up, and some of our
shareholders may immediately sell their shares and depress our stock price. Our
current stockholders have not entered into any agreements which restrict their
ability, by contract, to sell or otherwise dispose of their common stock. As a
result, our stockholders will be able to sell any and all of their shares of
common stock, subject to applicable federal securities laws. Sales and
distributions of substantial amounts of our common stock in the public market,
whether by reason of this registration statement or by existing shareholders,
could adversely affect the prevailing market price for our securities.
Our registration statement contains forward-looking statements which
may in the future prove to be inaccurate. We have included forward-looking
statements in this registration statement. The information contained in this
registration statement includes information based on trends or other
forward-looking statements that involve a number of assumptions, risks, and
uncertainties. The actual results of our operations could differ materially from
our historical results of operations and those discussed in the forward-looking
statements. The forward-looking statements are based on our management's
beliefs, as well as assumptions management has made based on currently available
information. Words such as "anticipate," "believe," "estimate," "plan,"
"expect," "intend," and words or phrases of similar import, as they relate to us
or our management, are intended to identify forward-looking statements. The
forward-looking statements should be read in light of these factors and the
factors identified elsewhere in this registration statement.
FINANCIAL INFORMATION
The financial information set forth below with respect to our statements of
operations for each of the years in the two-year period ended December 31, 1998,
and with respect to our balance sheets at December 31, 1997 and 1998, is derived
from financial statements included elsewhere in this registration statement
which have been audited by our independent certified public accountants, Crouch
Bierwolf & Chisholm, and is qualified by reference to such financial statements
and notes related thereto. The accounting acquirer, Utah WebWorks, Inc., had an
inception date of April 10, 1997. The financial data for the three month periods
ended March 31, 1998 and March 31, 1999 are derived from our unaudited financial
statements included elsewhere in this registration statement and, in the opinion
of our management, includes all adjustments (consisting only of normal,
recurring adjustments) necessary to present fairly the information set forth.
The results for the three months ended March 31, 1999 are not necessarily
indicative of the results that we can expect for the full year. The following
selected financial data should be read in conjunction with our financial
statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Result of Operation".
<PAGE>
-12-
<TABLE>
<CAPTION>
Year Ended Three Months Ended June Six Months Ended
December 31 30 June 30
1997 1998 1998 1999 1998 1999
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product Sales.................... 94,014 172,395 81,217 34,631 150,390 39,130
Total Revenues................. 94,014 172,395 81,217 34,631 150,390 39,130
Operating costs and expenses:
Selling, general and 163,021 312,099 78,890 129,507 $138,891 313,666
administrative.................
Sales 103,862 103,862
Development 105,273 105,273
Customer Service 21,060 21,060
Total costs and expenses....... 163,021 312,099 78,890 359,703 138,891 543,862
Income (loss) from operations.... (69,007) (139,704) 2,327 (325,072) 11,499 (504,732)
Interest expense................. (3,500) (10,761) 0 0 0 0
Interest income and other, net... 3,755 0 0 0 0 0
Income (loss) from continuing (68,752) (150,465) 2,327 (325,072) 11,499 (504,732)
operations before income
taxes and minority interest....
Income tax expense (benefit)..... 0 0 0 0 0 0
Income (loss) from continuing (69,007) (139,704) 2,327 (325,072) 11,499 (504,732)
operations.....................
Net income (loss)................ (69,007) (139,704) 2,327 (325,072) 11,499 (504,732)
Per Common Share Amounts:
Income (loss) from continuing (68.75) (150.46) 2.33 (0.04) 11.50 (0.06)
operations.....................
Net income (loss)................ (68.75) (150.46) 2.33 (0.04) 11.50 (0.06)
Shares used in computing per 1000 1000 1000 8,333,500 1000 8,333,500
share amounts..................
Balance Sheet Data:
Cash and cash equivalents........ 5,440 9,306 21,393 140,141 21,393 140,141
Total Assets..................... 61,092 55,970 99,464 307,036 99,464 307,036
Long-term obligations, 0 0 131,708 0 131,708 0
including current portion......
Redeemable convertible 0 0 0 0 0 0
preferred shares...............
Accumulated deficit.............. (68,752) (219,217) (57,253) (723,949) (57,253) (723,949)
Shareholders' equity (deficit)... (58,752) (209,217) (47,253) 286,051 (47,253) 286,051
See Notes to Financial Statements for information concerning the computation of per share amounts.
</TABLE>
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management Discussion and Analysis of Financial Condition
and Plan of Operations contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of a number of
factors, including those factors set forth under the section entitled "Risk
Factors" and elsewhere in this registration statement.
Overview. Our products allow small to medium-sized businesses to build,
manage, and maintain their own websites, sell products, generate leads,
distribute information, and gain intelligence about their website visitors.
<PAGE>
-13-
Originally, we focused on providing professional services for the Internet on an
hourly basis. After April, 1998, management shifted its focus to development and
sale of software products. This decision was based on management's vision of our
company, market conditions, and the type and amount of technology we had already
acquired or developed. In March, 1998, we began development of new Internet
software which was completed by November 1998. We market our software technology
under the brand name "Visual WebTools(TM)", which incorporates proprietary
intellectual property rights which we either own or license. We intend to target
small to medium-size businesses and create a reseller network through licensing
arrangements with other portal or website providers.
Asphalt Associates, Inc., which was our name before we changed it to
Pacific WebWorks, Inc., was a development stage company which did not generate
any revenues. As of July 1, 1999, after our merger with Utah WebWorks, we had an
accumulated loss of approximately $274,536, an amount which accrued during the
development of our technology. We expect our operating losses to continue until
we develop a sufficient reseller network and enter into sufficient licensing
agreements to cover our operating expenses.
Reverse merger treatment. We were incorporated in the state of Nevada
on May 18, 1987, as Asphalt Associates, Inc. Asphalt Associates never
established commercial business operations. On January 11, 1999, Asphalt
Associates completed a merger with Utah WebWorks, Inc., a Utah corporation. We
were the surviving entity in that transaction and, as part of the transaction,
changed our name to "Pacific WebWorks, Inc." At the time of the merger, Utah
WebWorks owned all of the intellectual property which we currently use. As a
result of the merger, the former shareholders of Utah WebWorks obtained 50% of
the voting power of the combined companies. Accordingly, in conformance with
generally accepted accounting principles, the merger has been accounted for as a
"reverse merger" and the accounting survivor is Utah WebWorks. The financial
statements for the fiscal year ended December 31, 1998 are those of Asphalt
Associates because the merger was effected on January 11, 1999. This discussion
will rely on the proforma consolidated unaudited financials for the year ended
December 31, 1998.
Stock Split and Change in Par Value. In December 1998, we authorized a
4-for-1 forward stock split. Unless otherwise noted in this registration
statement all share amounts reflect the forward stock split.
Results of Operations. The following table summarizes the results of
our operations for the years ended December 31, 1997 and 1998 and for the
interim period ended March 31, 1999.
<TABLE>
<CAPTION>
Year ended Year ended Six Month Period Ended
December 31, 1997 December 31, 1998 June 30, 1999
<S> <C> <C> <C>
Revenues $94,014 $172,395 $39,130
General & Administrative $163,021 $312,099 $313,666
Total Operating Expense $163,021 $312.099 $313,666
Operating Income/Loss ($69,007) ($139,704) ($274,536)
Interest Expense ($3,500) ($10,761)
Other Income $3,755 0 0
Net Profit (loss) ($68,752) ($150,465) ($274,536)
</TABLE>
Our expenses have exceeded our revenues for each fiscal period since
our inception. We have generated $39,130 in revenues from product sales and
licensing fees for our software technology during the first two quarters of
1999. We hope that our revenues will increase as a result of our efforts to
build a larger reseller network to market Visual WebTools(TM). We expect that,
as we implement our business plan, our revenues will grow, along with the
burdens generally associated with larger revenues, including increased burdens
on our managerial, accounting, and technical personnel.
<PAGE>
-14-
From period to period there have been significant fluctuations in
revenues and expenses. This is due to the fact that there have been major
changes in the nature of our business practice from a professional services
company to a software product company. Expenses increased dramatically in the
execution stages of our development plan and revenues dropped due to the fact
that our product did not begin selling until April 1999.
In light of the limited time that Pacific Webworks has been in business
and the fact that neither Asphalt Associates nor Utah Webworks engaged in the
type of business in which Pacific WebWorks participates, we believe that
comparisons with subsequent periods would neither be particularly informative
nor helpful. Based upon our most recent financial statements, we have increased
our revenues each month during the second quarter, and project that by December
31, 1999, we will be able to fund our own operations through revenues.
We have refined and improved our accounting processes during the first
six months of 1999. Although the information contained in our first quarter
reports was not tracked in sufficient detail to break out spending by individual
cost center, our management has implemented Great Plains Dynamics accounting
software. This will allow us to produce detailed cost and accounting information
from July 1, 1999 forward.
Our expenses for the first quarter of 1999 can generally be classified
as either general or administrative expenses. During the first quarter of 1999,
these costs however were almost entirely development. As visual Webtools(TM) was
released to the market we expanded our support and sales departments. Sales grew
from $4,499 in the first quarter to $39,130 in the second quarter. We believe
sales will continue to escalate as brand name awareness for Visual WebTools (TM)
grows and improves.
General and administrative costs for the first six months of 1999 were
$359,703, which includes all officer salaries, general office expenses,
production and shipping expenses. This figure does not include the salary of
Mark Jensen, the Chief Operating Officer, who joined the company in the second
quarter of 1999. Sales expenses for this same period were $103,862. This
includes both selling and marketing expenses. Sales expenses for the second
quarter changed due to the development of an inside sales force, which includes
experienced internet sales people and equipment such as a predictive dialer.
Development expenses for the first quarter of 1999 were $105,273 which includes
all costs for product design, programming, and quality control.
Due to minimal sales in the first six months of 1999, the majority of
financing was derived from investment capital. Please refer to the Section
entitled "Recent Sales of Unregistered Securities" on page 21. We expect sales
to increase in the second half of 1999, and we plan to minimize our reliance on
outside financing as a result of our anticipated sales increases.
Our current liabilities increased from $12,000 at the end of the first
quarter of 1999 to $20,000 at the end of the second quarter. We currently have
no long term debt.
Quarterly Trends. We do not anticipate significant "seasonal" changes
in our operations. Our product is a software which is designed for internet
commerce and as such we predict that sales will generally remain unchanged
throughout the year. We hope that revenues will grow consistently over the next
five years. We believe that increases (or decreases) in our revenues should be
reasonably steady from quarter to quarter based on the fact that the initial
product development is completed and that we currently maintain fairly steady
and identifiable growth and expenditure rates. We believe our revenues will come
from product sales and licensing agreements with resellers.
Liquidity and Capital Resources. Since our inception, we have funded
our cash requirements through issuances of our common stock. We have used the
funds from those transactions to fund our investments in and development of our
technology, to provide working capital, and for general corporate purposes. In
December, 1998, we sold 840,000 common shares to two accredited investors for
$1,000,000. As of the year ended December 31, 1998, we posted current assets of
$1,000,000, with no liabilities, resulting in a positive net worth of
$1,000,000. Our operating losses were $150,465 in 1998 and were funded primarily
by equity transactions.
Pursuant to the merger agreement, Asphalt Associates placed $1 million
in escrow. Asphalt Associates subsequently loaned $250,000 of the $1 million to
Utah WebWorks as a 30 day interest free loan. The entire $1 million was
subsequently converted into 840,000 shares of our common stock in the merged
entity, at which time the $250,000 note was forgiven. The remaining $750,000 was
disbursed to us over the first six months of 1999. Also, the management of
Asphalt Associates resigned and the management and board of Utah WebWorks filled
the
<PAGE>
-15-
vacancies. As a result of these transactions, our financial statements show
total assets of $307,036 for the period ended June 30, 1999, which includes cash
or cash equivalents of $140,141. With total liabilities of $20,985, we showed a
positive net worth of $286,051. We experienced operating losses of $504,732 for
the six months ending June 30, 1999.
A summary of our audited balance sheets for the years ended December
31, 1997 and December 31, 1998 and our interim statements for June 30, 1999 are
as follows:
<TABLE>
<CAPTION>
Year ended Year ended Six Month Period Ended
December 31, 1997 December 31, 1998 June 30, 1999
<S> <C> <C> <C>
Cash/Cash Equivalents $5,440 $9,306 $140,141
Current Assets $34,551 $20,534 $186,159
Total Assets $61,092 $55,970 $307,036
Current Liabilities $119,844 $265,187 $ 20,985
Total Liabilities $119,844 $265,187 $ 20,985
Total Stockholder Equity ($58,752) ($209,217) $286,051
Total Liabilities
& Stockholder Equity.. $61,092 $55,970 $307,036
</TABLE>
We believe that we have sufficient resources to continue our product
development efforts and to continue our sales, marketing, and promotional
activities for Visual WebTools(TM). However, we operate in a very competitive
industry in which large amounts of capital are required in order to develop and
promote products. Many of our competitors have significantly greater capital
resources than we do. We believe we will need to continue to raise additional
capital, both internally and externally, in order to successfully compete.
While we may be able to fund our operations through our revenues in the
near future, we currently anticipate commencing an offering of our securities to
satisfy our cash requirements in the near future. We have not as of yet
determined the type of offering or the type or number of securities which we
will offer. The current products have been marketed and sold since March of
1999. Actual development costs will depend on a number of factors, including
- our ability to negotiate favorable licensing agreements with
resellers;
- the number of our resellers;
- the software and services for which they subscribe;
- the nature and success of our products and services;
- regulatory changes;
- and changes in technology.
In addition, our actual expenses and revenues could vary materially
from the amounts we anticipate or budget, and such variations may affect the
additional financing needed for our operations. Accordingly, there can be no
assurance that we will be able to obtain the capital that we will require.
We currently estimate that we will require between $1,500,000 and
$2,500,000 to further and fully develop our products and services in accordance
with our business plan. To the extent that we acquire the amounts necessary to
fund our business plan through the issuance of equity securities, our
then-current shareholders may experience dilution in the value per share of
their equity securities. The acquisition of funding through the issuance of debt
could result in a substantial portion of our cash flows from operations being
dedicated to the payment of principal and interest on that indebtedness, and
could render us vulnerable to competition or economic downturns.
OTC Bulletin Board Eligibility Rule. In January of 1999, the SEC
granted approval to the NASD OTC Bulletin Board Eligibility Rule 6530 which
requires a company listed on the OTC Bulletin Board to be a reporting
<PAGE>
-16-
company and current in its reports filed with the SEC. As a result of this rule
change we have filed this registration statement in order to become a fully
reporting company and list our common stock on the OTC Bulletin Board. The SEC
reporting requirements will add additional expenses to our operations, including
the expense of filing this registration statement and preparing annual and
quarterly reports. Because the SEC did not reach a position of no comment with
regard to this registration statement prior to August 1999, we have lost our
listing on the OTC Bulletin Board, which has had an adverse impact upon the
market for our common stock. We anticipate trading on the OTC Bulletin Board
soon after this registration statement is declared effective.
Year 2000 Compliance. We have completed a review of our computer
systems and operations to determine the extent to which our business could be
vulnerable to potential errors and failures as a result of the "year 2000"
problem. The year 2000 problem results from the use of computer programs which
were written using only two digits (rather than four digits) to define
applicable years. On January 1, 2000, any clock or date recording mechanism,
including date-sensitive software which uses only two digits to represent the
year, could interpret a date of "00" as the year "1900," rather than the year
"2000." This could result in system failures or miscalculations, causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, provide services or engage in similar
activities. These failures, miscalculations and disruptions could have a
material adverse effect on our business, operations, and financial condition.
We believe, based on our review of our operations and computer systems,
that our significant computer programs and operations will not be materially
affected by the Year 2000 problem, and that we can modify or replace the
programs that will be affected by the end of 1999 at a cost which will not be
significant. Any remediation efforts or costs would be minimal due to the fact
that all of the functions handling dates are handled by technology platforms
such as Microsoft Windows NT server, Microsoft Information Server, Microsoft
ADO, and Oracle 8I server, all of which are year 2000 compliant. Under a
reasonably likely worst case scenario, however, our computer systems and/or
operations could be materially affected by the year 2000 problem, causing a
system failure and resulting in loss of sales, loss of current revenues derived
from current client, and possible loss of vendors, resellers, or sales
representatives.
We have prioritized our year 2000 efforts in an effort to protect, to
the extent possible, our business and operations. Our first priority will be to
protect our critical operations, such as those systems and applications that we
use to provide various resellers and customers with access to Visual
WebTools(TM), from incurring material service interruptions that could occur as
a result of the year 2000 transition. To this end, we have attempted to identify
any element within our business operation (including elements relating to third
party relationships) that could be materially impacted by the year 2000 date
change, and have attempted to determine the risks to our continuing business
operations as a result of an adverse effect resulting from that date change. To
this end we have conducted extensive testing of all of our systems in relation
to all date related functions of our software platforms and servers. During
these tests we identified a single problem with our telephone and voice system.
Both of these systems have been replaced with new systems which are year 2000
compliant at a cost to us of $10,000.
In addition to our own properties and computer systems, we rely on
operations and computer systems of third party customers, financial
institutions, vendors and other parties with or through which we conduct
business (such as utilities, Internet service providers, and the owners of
communications backbones). We generally require our resellers and suppliers to
warrant that they are year 2000 ready. We have purchased most of our
mission-critical systems from such third-party vendors. We have attempted to
identify the resellers and third parties with which we have contractual
relationships which may not be year 2000 compliant by the end of 1999, and we
have adopted contingency plans which we believe will mitigate any adverse impact
to our business operations resulting from those vendors' or third parties'
inability to perform their contractual obligations. Our contingency plans
include preparing and using backup copies of our financial records, determining
the availability and reliability of alternate network and backbone communication
systems, and scheduling additional phone center, repair, support, and
administrative personnel to be on hand on the transition date.
We have had no compliance efforts with respect to financial
institutions, third party customers, or vendors with which we conduct business.
We require no assurances or warranties of our resellers since they have no
material effect on the working nature of our products. We have requested our
only product supplier, Intellipay, Inc., to give us a year 2000 compliance
statement.
<PAGE>
-17-
We believe that our systems are year 2000 compliant and believe we will
not suffer as a result of the year 2000 problem.
PROPERTIES
We currently lease 8,500 square feet of commercial office space in the
Westgate Business Center in Salt Lake City, Utah 84101. The building has a total
of 200,000 square feet of office and common space and serves as our main office
and production facility. We pay $8,610 each month for our lease and an
additional $720 for parking stalls, which we believe is typical for similar
premises in the area currently available for lease. The current lease is for a
three year term and will expire on December 31, 2001.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of August 31, 1999, the beneficial
ownership of our outstanding common stock of: (i) each person or group known by
us to own beneficially more than 5% of our outstanding common stock, (ii) each
of our executive officers, (iii) each of our directors, and (iv) all executive
officers and directors as a group. Beneficial ownership is determined in
accordance with the rules of the SEC and generally includes voting or investment
power with respect to securities. Except as indicated by footnote, the persons
named in the table above have sole voting and investment power with respect to
all shares of common stock shown as beneficially owned by them. The inclusion of
any shares as beneficially owned does not constitute an admission of beneficial
ownership of those shares. The percentage of beneficial ownership is based on
10,000,000 shares of common stock outstanding as of August 31, 1999.
CERTAIN BENEFICIAL OWNERS
Common Stock Beneficially Owned
Name and Address of Number of Shares of
Beneficial Owners Common Stock Percentage of Class
- -------------------------------- ------------ -------------------
Net Strategic Investments, LLC(1) 1,117,500 11.175%
1986 E. Falcon Hill Circle
Sandy, Utah 84092
MANAGEMENT
Common Stock Beneficially Owned
Name and Address of Number of Shares of
Beneficial Owners Common Stock Percentage of Class
- -------------------------------- ------------ -------------------
Lamar P. Taylor 1,665,000(2) 16.7%
180 South 300 West, Suite 400
Salt Lake City, Utah 84101
Allan E. Oepping 725,000 7.3%
180 South 300 West, Suite 400
Salt Lake City, Utah 84101
- --------------------------------
(1) Christian Larsen's father owns all of the outstanding stock of Net
Strategic Funding, Inc., the corporation which owns all of the interest of Net
Strategic Investments, LLC. Mr. Christian Larsen has disclaimed beneficial
ownership of such shares.
(2) Mr. Taylor is one of two members of LVT Associates, LLC and shares
voting and investing power with such LLC.
<PAGE>
-18-
Eric K. Schmitter 500,000 5.0%
180 South 300 West, Suite 400
Salt Lake City, Utah 84101
Benjamin A. Black 500,000 5.0%
180 South 300 West, Suite 400
Salt Lake City, Utah 84101
All executive officers and
directors as a group 3,390,000 33.9%
Currently Christian Larsen does not own any of our stock. Mark Jensen
and Mat Dastrup have options to purchase 150,000 and 60,000 shares,
respectively, none of which are currently exercisable.
DIRECTORS AND EXECUTIVE OFFICERS
Our directors, executive officers and key employees, as of the date
hereof, and their respective ages and positions with us are set forth below.
Biographical information for each of those persons is also presented below. Our
executive officers are chosen by our Board of Directors and serve at their
discretion.
Directors and Officers
Name Age Position Held
- -------------------- --- ---------------------------------------------------
Christian R. Larsen 25 Director, President, Acting Chief Executive Officer
Mark S. Jensen 42 Chief Operating Officer, Acting Secretary
Mat Dastrup 36 Chief Financial Officer
Lamar P. Taylor 37 Director
Allan E. Oepping 24 Director
Eric K. Schmitter 24 Director
Benjamin A. Black 27 Director
Christian R. Larsen: Mr. Larsen serves as President and Acting Chief Executive
Officer of Pacific WebWorks and has done so since April 1999. He will serve as
President until April of 2000. For the two years prior to this he served as
Chief Operating Officer for Pacific WebWorks, Inc. and as a consultant for Utah
WebWorks. In July, 1993 he started Innovative Research and Animated Design, Inc.
(the "IRAD") which developed custom and commercial software for animation and
special effects. He served as President of IRAD from October 1993 until February
1997. IRAD grew to a Company employing 28 individuals. He has seven years'
experience providing computer consulting and business management services. Mr.
Larsen filed a Chapter 7 voluntary bankruptcy petition in May of 1997 in the
District of Utah Central Division of the United States Bankruptcy Court, which
was discharged in September of 1997.
Mark S. Jensen: Mr. Jensen has served as Chief Operations Officer of our company
since he joined us in June, 1999, after spending eighteen years in sales,
operations, and services in the software industry. Prior to Joining Pacific
WebWorks, Inc., he served as Operations Manager for the western U.S. division of
GEAC Commercial Systems, a division of GEAC Computers, Inc., which specializes
in the development and sale of application software. There Mark integrated the
acquired operations of ProMation Inc. and Libra Signature Software. He held this
position from August 1996 to June 1999. Prior to his employment with GEAC, Mark
was the General Manager for ProMation Inc., a construction application software
provider. Mark began his career with ProMation as its Vice President of Sales,
and held that position from 1990 to 1996. Mark graduated with a B.A. in Business
Administration and Marketing from Weber State University in 1981.
Mat Dastrup: Mr. Dastrup serves as Chief Financial Officer and has been with the
company since July, 1999. He brings twelve years of experience including three
years with Price Waterhouse, which firm he left as a senior accountant. He has
over five years experience as CFO for North American Arms, Inc. and for S & S
Power, Inc. He graduated with a B.S. in Accounting and a B.A. in Japanese
Literature from Brigham Young University in 1987.
<PAGE>
-19-
Lamar P. Taylor: Mr. Taylor was the founder of Utah WebWorks, Inc. He currently
serves as a Director of the Company. He served as President for Utah WebWorks
from April of 1997 until it merged with Pacific WebWorks in April, 1999. Mr.
Taylor then served as President and Chief Executive Officer of Pacific WebWorks
until May, 1999. From 1994 through 1997, Mr. Taylor worked as a senior animator
for IRAD, producing two dimensional and three dimensional computer animation for
television commercials, promotional videos and medical simulations from 1994 to
1997. From 1991 through 1994, Mr. Taylor was employed as the Freelance Technical
Director for Shockwave Entertainment, Inc. There he created interactive video
graphics for feature films including True Lies and Lawnmower Man. He received
his B.A. with Honors from California State University, Los Angeles in 1991.
Allan E. Oepping: Mr. Oepping serves as a Director and as Pacific WebWorks' Vice
President of Engineering. He is a Microsoft Certified Systems Engineer (MCSE)
and has fourteen years' experience working with computer hardware and software.
He started with Utah WebWorks in November of 1997 as an independent consultant,
then became its Technical Director in August of 1998. He was the head programmer
for IRAD for five years. While at IRAD, Allan developed several new
technologies, including a spatial division/isolation technique which speeds up
renderings from 200% to 700%. He attended Salt Lake Community College in Salt
Lake City, Utah during 1994. Mr. Oepping filed a Chapter 7 voluntary bankruptcy
petition on March 2, 1998, in the District of Utah, Central Division of the
United States Bankruptcy Court. The petition was discharged on June 12, 1998.
Eric K. Schmitter: Mr. Schmitter serves as a Director. He started with Utah
WebWorks as the Creative Director in April of 1997. He has two years experience
in animation and two years experience in software sales. He attended the
University of North Texas during 1993 and the University of Utah in 1994. In
1988, Mr. Schmitter filed a Chapter 13 voluntary bankruptcy petition, which
later converted to a Chapter 7, in the District of Utah, Central Division, of
the United States Bankruptcy Court. The petition was subsequently discharged
later that year.
Benjamin A. Black: Mr. Black serves as a Director. He has five years' experience
in software development programming. He has worked as Senior Programmer for Utah
WebWorks since April of 1997. He was lead programmer at IRAD from 1994 through
1997. In 1995 he received his Associate of Science degree in electronics
technology from Salt Lake Community College in Salt Lake City, Utah. He is a
Microsoft Certified Systems Engineer (MCSE) and is experienced in advanced
programming languages including C, C++, and Perl.
Board of Directors: Our Articles of Incorporation provide for a Board
of Directors consisting of at least 3, but no more than 9 persons. Our directors
serve for terms of one year.
EXECUTIVE COMPENSATION
Each executive officer is compensated at different levels, however the
compensation structure for the officers is the same. Executive compensation is
based upon a base salary with bonuses being established upon a percentage of
gross sales. Total salaries and bonuses are also capped. There is also a program
under which executives are compensated in the form of stock options which are
awarded based on sales or performance milestones and can be executed at $2.00 a
share. We determine an executive's availability to participate in the program by
our accomplishment of revenue milestones. Upon reaching a specified milestone as
determined by our Board, each executive can receive a bonus which does not
exceed $150,000 when added to his or her base salary. Executive officers and
employees are treated equally with respect to sick time, paid holidays, and
medical insurance. We value these benefits at approximately $6,100 per year,
based upon an average annual salary of $35,000.
During the past two fiscal years, no executive officer has been paid
compensation which exceeds $100,000. During 1997 no executive officer received
cash compensation, bonuses, stock appreciation rights, long term compensation,
stock awards or long-term incentive rights. In December of 1998, Mr. James R.
Glavas, our former President, received 120,000 common shares, valued at $12,000
($0.10 per share) for services rendered during 1998. None of the current
officers and directors received compensation from us during our last fiscal year
because the merger was not effective until January 11, 1999.
Compensation of Directors. We do not have any standard compensation
arrangements for our directors.
Employment Contracts. We have adopted a policy to enter into employment
agreements with our senior management, and entered into employment agreement
with each of our managers in April of 1999. Each agreement is effective for one
year and will be automatically renewed annually unless terminated. Mr. Larsen,
our Chief
<PAGE>
-20-
Executive Officer, will receive an annual base salary of $60,000 and bonuses not
to exceed an additional $65,000. Mr. Jensen, our highest paid officer, will
receive a base salary of $75,000 and bonuses not to exceed another $75,000. Each
of our senior managers receives medical insurance. Each may be terminated for
cause if he or she acts improperly or negligently in his position, engages in
dishonest or illegal conduct, and/or breaches our policies and procedures. Each
may be terminated for disability if he fails to perform duties for 90
consecutive days for mental or physical health reasons. Each promises to not
compete with us for a period of one year after his or her employment expires or
terminates, unless he assures us in writing that confidential and proprietary
information will not be jeopardized. All inventions and improvements in our
products or methods of conducting business shall remain our property. Each
agrees not to solicit employees, customers or others for a period of two years
after the termination of his employment. After termination or resignation, each
agrees not to disclose or use confidential or proprietary information. The
agreements provide compensation if we have a change in control or if the person
resigns, or the employment is terminated.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following information summarizes certain transactions we have
either engaged in during the past two years or propose to engage in involving
our executive officers, directors, 5% stockholders, or immediate family members
of such persons:
In December of 1998, we issued an aggregate of 200,000 common shares
valued at $20,000 for consulting services we received. Of these shares, 120,000
common shares were issued to James R. Glavas, our president prior to the merger
with Utah WebWorks, and 80,000 shares were issued to Tony Glavas, his son.
Pursuant to the Merger Agreement, $1,000,000 was placed in an escrow
account by Asphalt Associates, our predecessor in interest, to be disbursed to
the merged entity. We loaned $250,000 of such funds to Utah WebWorks as a 30 day
interest free loan in order to allow Utah WebWorks to satisfy a debt pending the
merger. The note payable was credited to our value in determining the number of
shares each party's shareholders received. Accordingly, each group of
shareholders received 5,000,000 shares in the merged entity. The balance of the
funds ($750,000) was distributed to us between January and June of 1999.
LEGAL PROCEEDINGS
We are not aware that we are a party to any existing or threatened
legal or administrative proceedings as of the date of this filing.
MARKET PRICE OF AND DIVIDENDS ON OUR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
From January, 1999 through August 3, 1999, our common stock traded
over-the-counter and was quoted on the OTC Electronic Bulletin Board under the
symbols "PWEB" and "PWEBE". In January of 1999, the SEC granted approval to the
NASD OTC Bulletin Board Eligibility Rule 6530 which requires a company listed on
the OTC Bulletin Board to be a reporting company and current in its reports
filed with the SEC. As a result of this rule change we have filed this
registration statement in order to become a fully reporting company and list our
common stock on the OTC Bulletin Board. The SEC reporting requirements will add
additional expenses to our operations, including the expense of filing this
registration statement and preparing annual and quarterly reports. Because the
SEC did not reach a position of no comment with regard to this registration
statement prior to August 1999, we have lost our listing on the OTC Bulletin
Board, which has had an adverse impact upon the market for our common stock. We
anticipate trading on the OTC Bulletin Board soon after this registration
statement is declared effective.
There was no trading activity in our common stock during 1997 and 1998.
Standard Transfer Company, located in Salt Lake City, Utah, currently acts as
our transfer agent and registrar for the common stock. The following table
presents the range of the high and low bid prices of our stock as reported by
the NASDAQ Trading and Market Services. Such quotations represent prices between
dealers and may not include retail markups, markdowns, or commissions and may
not necessarily represent actual transactions.
<PAGE>
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Year Quarter High Low
---- ------- ----- -----
1999 First 20.0 6.875
1999 Second 9.875 5.625
On December 31, 1998, the Board authorized a four-for-one forward stock
split. We currently have 3,960,000 shares of common stock that are freely
tradable (except for such of those shares as may be acquired by our affiliates).
The remaining common stock held by existing shareholders are "restricted
securities" as that term is defined by Rule 144. Restricted securities may be
sold in the public market only if they are registered or if they qualify for
exemption from registration under Rules 144 or 701 under the Securities Act or
otherwise. As of August 31, 1999, we have approximately 142 stockholders of
record.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for at least one year is entitled to sell, within any three month period,
a number of shares that does not exceed the greater of (i) one percent of the
shares outstanding, or (ii) the average weekly volume of trading in such shares
for the four calendar weeks preceding such sale, subject to the filing of a Form
144 with respect to such sale and certain other limitations and restrictions. In
addition, a person who is not deemed to have been one of our affiliates at any
time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, would be entitled to sell
such shares under Rule 144(k) without regard to the volume, manner of sale and
other limitations described above.
An employee or consultant of ours who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permit non-affiliates to sell their Rule
701 shares without having to comply with the public information, holding-period,
volume-limitation, or notice provisions of Rule 144 and permit affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
registration statement.
Dividends. We have not paid dividends on our common stock and do not
intend to do so in the future.
RECENT SALES OF UNREGISTERED SECURITIES
The following discussion describes all securities sold by Pacific
WebWorks within the past three years without registration:
On December 24, 1998, we issued an aggregate of 200,000 common shares
valued at $20,000 for services rendered to us. Of these shares, 120,000 common
shares were issued to James R. Glavas and 80,000 shares were issued to Tony
Glavas, his son, for their services to Asphalt Associates, Inc.
On December 28, 1998, we issued an aggregate of 840,000 common shares
to two accredited investors for $1,000,000, with 440,000 common shares issued to
Capital Communications, Inc. and 400,000 common shares to Mutual Ventures
Corporation. On January 1, 1999 we issued an aggregate of 5,000,000 common
shares to the stockholders of Utah WebWorks, Inc., pursuant to the Merger
Agreement under which that company merged with Asphalt Associates and changed
its name to Pacific WebWorks, Inc.
In February, 1999, we issued a warrant to Columbia Financial Group to
purchase 400,000 shares of our common stock at an aggregate exercise price of
$1,475,000 in exchange for their services to us.
In connection with each of these isolated issuance's of our securities,
we believe that each purchaser
- was aware that the securities had not been registered under federal
securities laws;
- acquired the securities for his/its own account for investment
purposes and not with a view to or for resale in connection with any
distribution for purposes of the federal securities laws;
- understood that the securities would need to be indefinitely held
unless registered or an exemption from registration applied to a
proposed disposition; and
- was aware that the certificate representing the securities would
bear a legend restricting their transfer.
<PAGE>
-22-
We believe that, in light of the foregoing, the sale of our securities
to the respective acquirers did not constitute the sale of an unregistered
security in violation of the federal securities laws and regulations by reason
of the exemptions provided under Sections 3(b) and 4(2) of the Securities Act of
1933, and the rules and regulations promulgated thereunder.
DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
Common Stock. The Board authorized a four-for-one forward common stock
split on December 31, 1998 and changed the authorized capital from 20,000,000 to
50,000,000 common shares, par value $.001. We have not authorized or issued any
preferred stock. Holders of the common stock are entitled to receive, pro rata,
such dividends as may be declared by our Board of Directors out of funds legally
available for such purposes. In the event of our liquidation, dissolution or
winding up, the holders of the common stock are entitled to participate in all
assets remaining after the payment of liabilities. The holders of the common
stock have no preemptive rights and no right to convert the common stock into
any other securities. There are no redemption or sinking fund provisions
applicable to the common stock, and all outstanding common stock is fully paid
and non-assessable. The holders of the common stock are entitled to one vote for
each share they hold of record on all matters submitted to a vote of our
stockholders. We have not paid, and do not intend to pay, cash dividends on the
common stock for the foreseeable future.
Anti-Takeover Effective Nevada Law In Certain Provisions. Nevada law
provides that any agreement providing for the merger or consolidation for sale
of all or substantially all of the assets of a corporation be approved by the
owners of at least the majority of the outstanding shares of that corporation,
unless a different vote is provided for in our Articles of Incorporation. Our
Articles of Incorporation do not provide for a super-majority voting requirement
in order to approve any such transactions. Nevada law also gives appraisal
rights for certain types of mergers, plans of reorganization, or exchanges or
sales of all or substantially all of the assets of a corporation. Under Nevada
law, a stockholder does not have the right to dissent with respect to (a) a sale
of assets or reorganization, (b) any plan of merger or any plan of exchange, if
(i) the shares held by the stockholder are part of a class of shares which are
listed on a national securities exchange or the NASDAQ National Market Systems,
or are held of record by not less than 2,000 shareholders and (ii) the
stockholder is not required to accept for his shares any consideration other
than shares of a corporation that, immediately after the effective time of the
merger or exchange, will be part of a class of shares which are listed on a
national securities exchange or the NASDAQ National Market System, or are held
of record by not less than 2,000 holders.
Control Share Acquisition Provision. Under Nevada law, when a person
has acquired or offers to acquire one-fifth, one-third, or a majority of the
stock of a corporation, a stockholders' meeting must be held after delivery of
an "offeror's" statement, at the offeror's expense, so that the stockholders of
the corporation can vote on whether the owner(s) of the shares proposed to be
acquired (the "control shares") can exercise voting rights. Except as otherwise
provided in a corporation's Articles of Incorporation, the approval of the
owner(s) of a majority of the outstanding stock not held by the offerors is
required so that the stock held by the offerors will have voting rights. The
control share acquisition provisions are applicable to any acquisition of a
controlling interest, unless the Articles of Incorporation or by-laws of a
corporation in effect on the tenth day following the acquisition of a
controlling interest by an acquiring person provide that the control share
acquisition provisions do not apply. We have not elected out of the control
share acquisition provisions of Nevada law.
Combination Moratorium Provision. Nevada law provides that a
corporation may not engage in any "combinations," which is broadly defined to
include mergers, sales and leases of assets, issuances of securities, and
similar transactions with an "interested stockholder" (which is defined as the
beneficial owner of 10% or more of the voting power of the corporation) and
certain affiliates of their associates for three years after an interested
stockholder's date of acquiring the shares, unless the combination or the
purchase of the shares by the interested stockholder is approved by the Board of
Directors by the date the interested stockholder acquires the shares. After the
initial three-year period, any combination must still be approved by majority of
the voting power not beneficially owned by the interested stockholder or the
interested stockholders' affiliates or associates, unless the aggregate amount
of cash and the market value of the consideration other than cash that could be
received by stockholders as a result of the combination is at least equal to the
highest of: (a) the highest bid per share of each class or series of shares,
including the common shares, on the date of the announcement of the combination
or on the date
<PAGE>
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the interested stockholder acquired the shares; or (b) for holders of preferred
stock, the highest liquidation value of the preferred stock.
Other Provisions. Under Nevada law, the selection of a period for
achieving corporate goals is the responsibility of the directors. In addition,
the officers, in exercising their respective powers with a view to the interests
of the corporation, may consider (i) the interests of the corporation's
employees, suppliers, creditors, and customers, (ii) the economy of the state
and the nation, (iii) the interests of the economy and of society, and (iv) the
long-term, as well as short-term, interests of the corporation and its
stockholders, including the possibility that those interests may be best served
by the continued independence of the corporation. The directors also may resist
any change or potential change of control of the corporation if the directors,
by majority vote of a quorum, determine that a change or potential change is
opposed to or not in the best interests of the corporation "upon consideration
of the interest of the corporation's stockholders," or for one of the other
reasons described above. The directors may also take action to protect the
interests of the corporations' stockholders by adopting or executing plans that
deny rights, privileges, powers, or authority to a holder of a specific number
of shares or percentage of share ownership or voting power.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Neither our Articles of Incorporation nor our bylaws provide for the
indemnification of a present or former director or officer. However, pursuant to
Nevada Revised Statutes Section 78.750 and 78.751 we must indemnify a director,
officer, employee, or agent of the corporation who is successful on the merits
or otherwise in defense of any action or suit. Such indemnification shall
include expenses, including attorney's fees actually or reasonably incurred.
Nevada law also provides for discretionary indemnification for each person who
serves as or at the request of the corporation as our officer or director. We
may indemnify such individuals against all costs, expenses, and liabilities
incurred in a threatened, pending, or completed action, suit or proceeding
brought because such individual is our director or officer. Such individual must
have conducted himself in good faith and reasonably believed that his conduct
was in, or not opposed to, our best interests. In a criminal action he must not
have had a reasonable cause to believe his conduct was unlawful.
<PAGE>
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INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Pacific WebWorks, Inc.
We have audited the accompanying balance sheets of Pacific WebWorks, Inc. as of
December 31, 1998 and 1997 and the related statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pacific WebWorks, Inc. as of
December 31, 1998 and 1997 and the results of its operations and cash flows for
the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has had recurring operating losses and is
dependent upon financing to continue operations. These factors raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in the Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
CROUCH, BIERWOLF & CHISHOLM
Salt Lake City, Utah
January 26, 1999
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
<PAGE>
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<TABLE>
<CAPTION>
Pacific WebWorks, Inc.
Balance Sheets
Assets
March 31, December 31,
1999 1998 1997
(unaudited)
<S> <C> <C> <C>
Current assets
Cash $549,679 $9,306 5,440
Accounts Receivable (net of allowance of $5,849,$6,600
and $2,545, respectively) 16,885 10,392 28,011
Employee Receivable 909 836 1,100
------------- ---------- ----------
Total Current Assets 567,473 20,534 34,551
------------- ---------- ----------
Property and Equipment (Note 3) 40,270 23,353 17,708
------------- ---------- ----------
Other Assets
Deposits 9,600 5,250 ---
Intangible Technology (Note 6) 6,333 6,833 8,833
------------- ---------- ----------
Total Other Assets 15,933 12,083 8,833
------------- ---------- ----------
Total Assets $623,676 $55,970 $61,092
============= ========== ==========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable $8,607 $11,261 $9,022
Accrued Expenses 3,946 3,926 6,920
Notes Payable (Note 5) --- 250,000 ---
Notes Payable - Related Party (Note 4) --- --- 103,902
------------- ---------- ----------
Total Current Liabilities 12,553 265,187 119,844
------------- ---------- ----------
Stockholders' Equity
Common Stock, authorized 50,000,000 shares of $.001
par value, issued and outstanding 10,000,000, 1,000
and 1,000 shares, respectively
10,000 1 1
Additional Paid in Capital 1,000,000 9,999 9,999
Retained Deficit (398,877) (219,217) (68,752)
------------- ---------- ----------
Total Stockholders' Equity 611,123 (209,217) (58,752)
------------- ---------- ----------
Total Liabilities and Stockholders' Equity $623,676 $55,970 $61,092
============= ========== ==========
The accompanying notes are an integral part of these financial statements
</TABLE>
<PAGE>
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<TABLE>
<CAPTION>
Pacific WebWorks, Inc.
Statement of Operations
For the Three For the
Months Ended Year Ended
March 31, December 31,
1999 1998 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues: $4,499 $69,301 $172,395 $94,014
Expenses:
General & Administrative 181,159 60,129 312,099 163,021
---------- ---------- ---------- ----------
Total Expenses 181,159 60,129 312,099 163,021
---------- ---------- ---------- ----------
Income (Loss) from Operations (179,660) 9,172 (139,704) (69,007)
Other Income (Expenses)
Interest Expense --- --- (10,761) (3,500)
Other Income --- --- --- 3,755
Net Income (Loss) $(179,660) $9,172 $(150,465) $(68,752)
========== ====== ========== =========
Net Income (Loss) Per Share $(.02) $9.17 $(150.46) $(68.75)
====== ===== ========= ========
Weighted average shares outstanding 8,333,500 1,000 1,000 1,000
========= ===== ===== =====
</TABLE>
<PAGE>
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<TABLE>
<CAPTION>
Pacific WebWorks, Inc.
Statement of Stockholders' Equity
Additional
Common Stock Paid-in Retained
Shares Amount Capital Deficit
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at Inception on April 10, 1997 $ --- $ --- $ --- $ ---
April 1997, shares issued for cash
at $10 per share 1,000 1 9,999 ---
Net loss December 31, 1997 --- --- --- (68,752)
---------- ---------- ---------- ----------
Balance, December 31, 1997 1,000 1 9,999 (68,752)
Net loss December 31, 1998 --- --- --- (150,465)
---------- ---------- ---------- ----------
Balance, December 31, 1998 1,000 1 9,999 (219,217)
Reverse Merger and Reorganization -
adjustment 9,999,000 9,999 990,001 --
Net loss March 31, 1999 --- --- --- (179,660)
---------- ---------- ---------- ----------
Balance, March 31, 1999 10,000,000 $10,000 $1,000,000 $(398,877)
========== ========== ========== ==========
</TABLE>
<PAGE>
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<TABLE>
<CAPTION>
Pacific WebWorks, Inc.
Statement of Cash Flows
For the Three For the
Months Ended Year Ended
March 31, December 31,
1999 1998 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income (loss) $(179,660) $9,172 $(150,465) $(68,752)
---------- ---------- ---------- ----------
Adjustments to reconcile net
(loss) to net cash
provided by operations
Depreciation & Amortization 4,942 --- 13,151 5,473
Bad Debt --- --- 4,055 2,545
Change in assets and liabilities:
Accounts receivable (7,591) (4,134) 13,828 (31,656)
Accounts Payable and accrued expenses (2,634) (2,624) (755) 15,942
---------- ---------- ---------- ----------
Net Cash Flows used in Operating Activities (184,943) 2,414 (120,186) (76,448)
---------- ---------- ---------- ----------
Cash Flows from Investing Activities:
Cash paid for property and equipment (20,334) (3,055) (12,675) (22,014)
Cash paid for deposits (4,350) (4,600) (5,250) ---
Cash paid for technology --- --- --- (10,000)
Cash acquired in acquisition 750,000 --- --- ---
---------- ---------- ---------- ----------
Net Cash Paid for Investing Activities 725,316 (7,655) (17,925) (32,014)
---------- ---------- ---------- ----------
Cash Flows from Financing Activities:
Cash from debt financing 210,000 5,000 381,300 108,802
Issuance of stock --- --- --- 10,000
Principle Payments on Debt financing (210,000) --- (239,323) (4,900)
---------- ---------- ---------- ----------
Net Cash Flows from Financing Activities --- 5,000 141,977 113,902
---------- ---------- ---------- ----------
Net increase (decrease) in cash 540,373 (241) 3,866 5,440
---------- ---------- ---------- ----------
Cash, beginning of period 9,306 5,440 5,440 ---
---------- ---------- ---------- ----------
Cash, end of period $549,679 $5,198 $9,306 $5,440
========== ========== ========== ==========
Supplemental Cash Flow Information
Cash Paid for:
Interest $14,262 $ ---
Taxes $ --- $ ---
</TABLE>
<PAGE>
-29-
CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES
We have had no change in, or disagreements with, our principal
independent accountant during the last two fiscal years.
Pacific WebWorks, Inc.
Notes to The Financial Statements
March 31, 1999 (unaudited), December 31, 1998 and 1997
NOTE 1 - Summary of Significant Accounting Policies
a. Organization
Pacific WebWorks, Inc., ("the Company") was organized under
the laws of the state of Nevada on May 18, 1987 as Asphalt Associate,
Inc. On December 31, 1998 the board of directors changed the name of
the Company to Pacific Webworks, Inc. On January 11, 1999, the Company
merged with Utah Webworks, Inc., a Utah corporation organized April 10,
1997. The share exchange with Utah webwords was accounted for as a
reverse merger, therefor all financial information is that of the
accounting survivor being Utah Webworks. Utah Webworks is currently
engaged in developing, selling and servicing computer and internet
related software and hardware products.
b. Accounting Method
The Company recognizes income and expenses on the accrual
basis of accounting.
c. Earnings (Loss) Per Share
The computation of earnings per share of common stock is based
on the weighted average number of shares outstanding at the date of the
financial statements. No fully diluted earnings per share data is
presented because there are no stock equivalents at December 31, 1998.
d. Cash and Cash Equivalents
The Company considers all highly liquid investments with
maturities of three months or less to be cash equivalents.
e. Provision for Income Taxes
The Company has elected an S-Corp status for income tax
purposes, which provides for all taxable income or loss to pass through
to the shareholders to be taxed on an individual level. Therefore there
is no provision for income taxes at the corporate level and no deferred
tax provision. Due to the merger stated in Note #7 above, the Company
will lose their S-Election status.
f. Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and revenues and expenses during the
reporting period. In these financial statements, assets involve
extensive reliance on management's estimates. Actual results could
differ from those estimates.
<PAGE>
-30-
g. Revenue Recognition
Revenue from professional services, internet software design
and engineering, is recorded as revenue when billed. Sale of software
products is recorded as revenue upon issuance of invoice.
h. Depreciation
The provision for depreciation is calculated using the
straight-line method over the estimated useful lives of the assets.
Depreciation expense for the period ended December 31, 1998 and 1997 is
$ 11,151 and $4,306, respectively
i. Concentrations
At December 31, 1998, four customers accounted for 37%, 14%,
14% and 13% of accounts receivable.
NOTE 2 - Going Concern
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. The Company
has had recurring operating losses since inception and is dependent on
financing to continue operations. Management has secured a financial
commitment through a reverse merger subsequent to the audit date (see
subsequent events Note 7). This commitment if fulfilled will provide
the Company with sufficient funds to expend business operations in
order to generate sufficient revenues to cover anticipated costs. The
financial statements do not include any adjustment that might result
from the outcome of this uncertainty.
NOTE 3 - Property and Equipment
Property and Equipment consists of the following at December
31, 1998 and 1997:
December 31,
1998 1997
----------- -----------
Computer Equipment $ 32,990 $ 20,315
Furniture and Fixtures 5,820 1,699
----------- -----------
Total 38,810 22,014
Less Accumulated Depreciation (15,457) (4,306)
----------- -----------
23,353 17,708
=========== ===========
Depreciation expense for the period ended December 31, 1998
and 1997 was $11,151 and $4,306, respectively.
NOTE 4 - Related Party Transactions
Lamar Taylor an officer and shareholder of the Company,
advanced funds to the Company for operating capital in the amounts of
$131,300 and $108,800 during the periods ended December 31, 1998 and
1997, respectively. The interest rate on the note was 6%. All advances
were repaid during 1998 and the balance at December 31, 1997 totaled
$103,902. These advances accrued interest at a rate of 6%.
NOTE 5 - Notes Payable
The Company borrowed $250,000 from Pacific WebWorks, Inc. a
public corporation, as a 30 day interest free loan pursuant to a merger
agreement which became effective on January 11, 1999. At such time the
note payable was converted to equity in the merged entity. (See Note
7).
<PAGE>
-31-
NOTE 6 - Intangible Technology
On May 7, 1997, the Company entered into an agreement for
assignment of a security interest and judgment from a bank for various
software service codes and other technology they held. The Company paid
$10,000 for the transfer of these software tools and is amortizing them
over a five year life. Amortization expense is $1,167 and $2,000 for
the years ended December 31, 1997 and 1998, respectively.
NOTE 7 - Subsequent Events
Effective January 11, 1999, the Company entered into an
agreement and Plan of Reorganization with Utah Webworks, Inc., (a
private company). The agreement provides for the merger of the Company
into Utah Webworks to be treated as a reverse merger, thus making Utah
Webworks the accounting survivor. Pursuant to the agreement, the
Company issued 5,000,000 shares of common stock to the shareholders of
Utah Webworks for all shares of their Company. Utah Webworks is in the
business of software development for computer and internet systems. The
Company has cash in escrow of $750,000 and a note receivable from the
Utah Webworks of $250,000 as its only assets. The cash and note
receivable were contributed to Utah Webworks as an investment in
subsidiary advanced for operations.
At December 31, 1998, the Company had outstanding warrants to
purchase 400,000 shares of the Company's common stock at prices ranging
from $ 2.50 to $6.00 per share. The warrants become exercisable in
January 1999 and expire in January 2004. Management believes because of
revenue bench marks and other factors, no value should be given to the
warrants.
NOTE 8 - Unaudited Information
Pacific WebWorks, Inc. (the Company) has elected to omit
substantially all footnotes to the financial statements for the three
months ended March 31, 1999. The information furnished herein was taken
from the books and records of the Company without audit. However, such
information reflects all adjustments which are, in the opinion of
management, necessary to properly reflect the results of the three
months ended March 31, 1999. The information presented is not
necessarily indicative of the results from operations expected for the
full fiscal year.
NOTE 9 - Consolidation Policy
The March 31, 1999 unaudited financial statements are
consolidated, to include the books of Pacific Webworks, Inc. (Utah) and
its parent Pacific Webworks, Inc. (Nevada). All inter-company accounts
have been eliminated in the consolidation.
<PAGE>
-32-
Pacific WebWorks, Inc.
Balance Sheet as of June 30, 1999
Assets
Current Assets
Cash $140,140.47
Net Receivables $46,018.33
Total Current Assets $186,158.80
Long-Term Assets
Net Fixed Assets $111,293.96
Long Term Deposits $5,250.00
Purchased Technology $4,333.00
Total Long-Term Assets $120,876.96
Total Assets $307,035.76
Liabilities and Equity
Current Liabilities
Trade A/P $13,400.73
Accrued Liabilities $7,583.86
Total Current Liabilities $20,984.59
Equity
Common Stock $10,840.00
Additional Paid-in Capital $999,160.00
Retained Earnings ($723,948.83)
Total Equity $286,051.17
Total Liabilities and Equity $307,035.76
<PAGE>
-33-
[members] McGLADREY NETWORK
In Independently Owned Member
Worldwide Services Through RSM International
JONES, JENSEN, & COMPANY LLC
Certified Public Accountants and Consultants
American Institute of
Certified Public accountants
Utah association of
Certified Public Accounts
SEC Practice Section
Private Companies Practice Section
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Asphalt Associates, Inc.
(A Development Stage Company)
Salt Lake City, Utah
We have audited the accompanying balance sheets of Asphalt Associates, Inc. (a
development stage company) as of February 28, 1998 and December 31, 1997 and
1996, and the related statements of operations, stockholders' equity, and cash
flows for the two month period ended February 28, 1998 and for the years ended
December 31, 1997, 1996 and 1995 from inception on May 18, 1987 through February
28, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Asphalt Associates, Inc. (a
development stage company) as of February 28, 1998 and December 31, 1997 and
1996, and the results of its operations and its cash flows for the two month
period ended February 28, 1998 and for the years ended December 31, 1997, 1996
and 1995 and from inception on may 18, 1987 through February 28, 1998 in
conformity with generally accepted accounting principles.
<PAGE>
-34-
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company is a development stage company with no
significant operating results to date, which raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/
_______________________
Jones, Jensen & Company
March 17, 1998
The accompanying notes are an integral part of these financial statements.
<PAGE>
-35-
<TABLE>
<CAPTION>
ASPHALT ASSOCIATES, INC.
(A Development Stage Company)
Balance Sheets
ASSETS
December 31,
February 28, ------------------------------------------
1998 1997 1996
------------------- ------------------ -------------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 2,382 $ 2,682 $ 2,950
------------------- ------------------ -------------------
Total Current Assets 2,382 2,682 2,950
------------------- ------------------ -------------------
TOTAL ASSETS $ 2,382 $ 2,682 $ 2,950
=================== ================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts Payable $ - $ - $ -
------------------- ----------------- --------------------
Total Current Liabilities - - -
------------------- ----------------- --------------------
STOCKHOLDERS' EQUITY
Common stock: 20,000,000 shares
authorized of $0.001 par value, 990,000
shares issued and outstanding 990 990 990
Additional paid-in capital 2,970 2,970 2,970
Deficit accumulated during the
development stage (1,578) (1,278) (1,010)
------------------- ----------------- --------------------
Total Stockholders' Equity 2,382 2,682 2,950
------------------- ----------------- --------------------
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $ 2,382 $ 2,682 $ 2,950
=================== ================= ====================
</TABLE>
<PAGE>
-36-
<TABLE>
<CAPTION>
ASPHALT ASSOCIATES, INC.
(A Development Stage Company)
Statement of Operations
From Inception on
For the Two For the Years Ended May 18, 1987
Months Ended December 31, Through
February 28, ________________________________________ February 28,
1998 1997 1996 1995 1998
<S> <C> <C> <C> <C> <C>
------------- ------------- ------------- ------------- -------------
REVENUES $ - $ - $ - $ - $ -
------------- ------------- ------------- ------------- -------------
EXPENSES
General and Administrative 300 268 355 - 1,578
------------- ------------- ------------- ------------- -------------
Total Expenses 300 268 355 - 1,578
------------- ------------- ------------- ------------- -------------
NET LOSS $ (300) $ (268) $ (355) $ - $ (1,578)
============= ============= ============= ============= =============
LOSS PER SHARE OF COMMON
STOCK $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============= ============= ============= =============
</TABLE>
<PAGE>
-37-
<TABLE>
<CAPTION>
ASPHALT ASSOCIATES, INC.
(A Development Stage Company)
Statements of Stockholders' Equity
Deficit
Additional Accumulated During
Common Stock Paid-In the Development
Shares Amount Capital Stage
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance, May 18, 1987 - $ - $ - $ -
Common stock issued for cash
$0.004 per share 980,000 980 2,940 -
Common stock issued for services
at $0.004 per share 10,000 10 30 -
Net loss from inception to
December 31, 1994 (655)
------------- ------------- ------------- -------------
Balance, December 31, 1994 990,000 990 2,970 (655)
Net loss for the year ended
December 31, 1995 - - - -
------------- ------------- ------------- -------------
Balance, December 31, 1995 990,000 990 2,970 (655)
Net loss for the year ended
December 31, 1996 - - - (355)
------------- ------------- ------------- -------------
Balance December 31, 1996 990,000 990 2970 (1,010)
Net loss for the year ended
December 31, 1997 - - - (268)
------------- ------------- ------------- -------------
Balance, December 31, 1997 990,000 990 2,970 (1,278)
Net loss for the two months
ended February 28, 1998 - - - (300)
------------- ------------- ------------- -------------
Balance, February 28, 1998 990,000 $ 990 $ 2,970 $ (1,578)
</TABLE>
<PAGE>
-38-
<TABLE>
<CAPTION>
ASPHALT ASSOCIATES, INC.
(A Development Stage Company)
Statements of Cash Flows
For the Two For the Years Ended May 18, 1987
Months Ended December 31, Through
February 28, ________________________________________ February 28,
1998 1997 1996 1995 1998
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Loss from operations $ (300) $ (268) $ (355) $ - $ (1,578)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Stock issued for services - - - - 40
------------- ------------- ------------- ------------- -------------
Net Cash Used by
Operating Activities (300) (268) (355) - $ (1,538)
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES _ - - - -
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Common stock issued for cash - - - - 3,920
------------- ------------- ------------- ------------- -------------
Net Cash Provided by
Financing Activities - - - - 3,920
------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE IN
CASH AND CASH EQUIVALENTS) (300) (268) (355) - 2,382
------------- ------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT
AT BEGINNING OF PERIOD 2,682 2,950 3,305 3,305 -
------------- ------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 2,382 $ 2,682 $ 2,950 $ 3,305 $ 2,382
CASH PAID FOR
Interest $ - $ - $ - $ - $ -
Income Taxes $ - $ - $ - $ - $ -
</TABLE>
<PAGE>
-39-
ASPHALT ASSOCIATES, INC.
(A Development Stage Company)
Notes to the Financial Statements
February 28, 1998 and December 31, 1997 and 1996
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
The company was incorporated in the State of Nevada on May 18,
1987.
The Company was organized for the purpose of engaging in any
lawful activity and is classified as a development stage
company.
(b) Accounting Method
The Company's financial statements are prepared using the
accrual method of accounting. The Company has elected a
calendar year end.
(c) Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments
with maturities of three months or less at the time of
acquisition.
(d) Loss per Share
The computations of loss per share of common stock are based
on the weighted average number of shares outstanding during
the period of the financial statements.
(e) Provision for Taxes
At December 31, 1997, the Company has net operating loss carry
forwards totaling approximately $1,500 that may be offset
against future taxable income through 2012. No tax benefit has
been reported in the 1997 financial statements, because the
Company believes there is a 50% or greater chance the net
operating loss carry forwards will expire unused. Accordingly,
the potential tax benefits of the loss carry forwards are
offset by a valuation allowance of the same amount.
(f) Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
<PAGE>
-40-
Note 2. GOING CONCERN
The Company's financial statements are prepared using
generally accepted accounting principles applicable to a going
concern which contemplates the realization of assets and
liquidation of liabilities in the normal course of business.
However, the Company has little cash and has experienced
losses from inception. Without realization of additional
adequate financing, it would be unlikely for the Company to
continue as a going concern. The Company intends to seek a
merger with an existing operating company. Until that time,
management has committed to cover all operating costs of the
Company.
<PAGE>
-41-
FINANCIAL STATEMENTS AND EXHIBITS
(a) Exhibits
Exhibit Number Description
-------------- -----------
2.1* Articles of Merger for Asphalt Associates, Inc., dated
January 6, 1999
2.2* Agreement and Plan of Merger between Asphalt Associates,
Inc., and Utah WebWorks, Inc., dated January 11, 1999
3.1* Articles of Incorporation of Asphalt Associates, Inc.
3.2* Amended and Restated Bylaws of Pacific WebWorks, Inc.
10.1* Master Service Agreement between Electric Lightware,
Inc. and Utah WebWorks, Inc., dated February 2, 1998
10.2* Internet Access Agreement, Addendum to Master Service
Agreement between Electric Lightwaew, Inc. and Utah
WebWorks, Inc., dated February 2, 1998
10.3* Form of Employment Agreement
10.4* Development, License and Service Agreement between
American Home Business Association and Utah WebWorks,
Inc., dated April 15, 1999
10.5* Form of Reseller Agreement
10.6* Lease Agreement between Utah WebWorks and Westgate
Business Center dated January 11, 1999
10.7* Letter Agreement between Utah WebWorks, Inc. and
IntelliPay, Inc.
10.8* Consulting Agreement between Columbia Financial Group
and Pacific WebWorks, Inc., dated January 26, 1999
10.9 Strategic Reseller Agreement with U.S. Merchant Systems
10.10 Amended Form of Reseller Agreement
10.11 Promissory Note issued to Capital Communications, Inc.
11.1* Statement re computation of earnings per share
12.1* Statement re computation of ratios
27.1 Financial Data Schedule June 30, 1999 Update
*Previously Filed
<PAGE>
-42-
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, who is duly authorized.
Date: 9/2/99 Pacific WebWorks, Inc.
--------
By: /S/
_______________________________
Christian Larsen, President
ATTACHED EXHIBIT
10.9 Strategic Reseller Agreement with U.S. Merchant Systems
10.10 Amended Form of Reseller Agreement
10.11 Promissory Note issued to Capital Communications, Inc.
27.1 Financial Data Schedule June 30, 1999 Update
STRATEGIC RESELLER AGREEMENT
This agreement is made ______________, 1999 between US Merchant Systems, Inc.,
herein known as USMS, having principal offices at 39899 Balentine Dr. Suite 210,
Newark, Ca. 94560, and: ________________, with principal offices located at:
______________________________ herein known as "RESELLER"
WITNESSETH:
Whereas RESELLER shall offer for sale merchant accounts and credit card POS
equipment and software that shall be provided by USMS, and whereas USMS desires
to offer merchant accounts, and POS equipment to RESELLER for release to its
customers, and USMS shall pay commissions to RESELLER for such sales, the
parties do agree as stated in the covenants included herein.
Whereas the term POS equipment shall include any terminals, printers, software
or Internet Commerce Solution which shall be purchased or leased by customers of
RESELLER for the purpose of processing credit card and electronic check
transactions.
1.0 Duties of USMS:
1.1 USMS shall make available a credit card merchant account
application and services to clients of RESELLER and shall
utilize its best efforts to provide prompt, professional and
courteous service to RESELLER customers, and to resolve any
service issues in timely fashion.
1.2 USMS will perform the following functions for fulfillment and
service of sales performed by RESELLER:
- Documentation of sales prepared and delivered to customers
- Processing of all applications and payments
- Lease credit scoring and documentation
- Lease verification and funding
- Inventory purchasing
- POS equipment and software programming
- Shipping
- Merchant installation and training
- Documentation of special stipulations
- Follow up and customer service
- Collections and charge backs
- Data entry, data base management and reporting
- Set up of IntelliPAY software and training
- Prompt calculation and payment of profits toRESELLER
- RESELLER training as needed
1.3 USMS will pay commissions to RESELLER as outlined in schedule
A.
1.4 USMS will pay all commissions to RESELLER, from sales made by
RESELLER, as follows: All commissions as outlined in schedule
A, within 5 business days of completion of funding whether by
cash or be a leasing company.
1.5 USMS will provide a status report to RESELLER as requested,
for all sales in progress.
1.6 USMS will provide on-line training and support materials for
products and services to be sold by RESELLER representatives,
to be executed within 30 days of this agreement.
1.7 USMS will establish and maintain a system for on-line
applications and order processing for RESELLER clients.
1.8 USMS will provide an account executive/liaison to assist
RESELLER with the merchant account program.
<PAGE>
-2-
1.9 USMS will provide marketing assistance as needed and within
reason. Such assistance may include establishment of
brochures, newsletter articles, participation in RESELLER
conference calls with members, event appearances, web site and
on-line application integration, sales support, order form
design and more.
2.0 Duties of RESELLER:
2.1 RESELLER agrees to offer for sale to or lease by its customers
a package which includes POS equipment, and credit card
merchant accounts to be provided exclusively by USMS for the
term of this agreement.
2.2 RESELLER will perform the following functions to facilitate
all sales:
- Initiate contact to prospects and provide information
regarding the merchant account program.
- Complete a one page "Quick Application" and order form
with all of the customer's information.
- Properly and completely disclose all fees and charges to
the customer.
- Promptly submit quick applications and payment
information to USMS for processing.
- Ensure that RESELLER representatives are properly and
ethically representing all products and services provided
by USMS and IntelliPAY.
2.3 RESELLER agrees that commissions to RESELLER shall be advanced
within 5 business days of completion of funding to USMS,
however such commission shall not be deemed as fully earned
until RESELLER'S client has executed client's first
electronically debited lease payment-in the event of a lease.
RESELLER authorizes USMS to reverse commissions to RESELLER in
the amount equal to the amount of commission received by
RESELLER in the event that USMS must refund to the leasing
company funding for any sale in which the client has not made
client's first electronic lease payment.
2.4 RESELLER acknowledges that USMS is obligated to adhere to the
rules and regulations as set forth by VISA, Mastercard,
American Express, Discover, any acquiring banks, credit card
processors as well as federal, state and local laws, RESELLER
agrees that it will abide by any rules, and regulations, or
instructions concerning these rules and regulations as
presented to RESELLER by USMS.
RESELLER agrees not to publish any advertisement offering
USMS' credit card processing which has not been authorized in
writing by USMS.
2.5 RESELLER agrees that USMS may, at its sole discretion, select
any vendors and service providers needed to fulfill its
functions of this agreement.
2.6 RESELLER acknowledges that USMS shall put forth time, effort
and monetary expense towards the success and fulfillment of
this program. Such shall include, but not be limited to
acquisition and training of additional personnel, operational
costs, and investment in marketing and materials. RESELLER
acknowledges that violation of exclusivity by RESELLER, or
termination of this agreement prior to the end of its term may
cause monetary losses to USMS to which RESELLER may be liable.
<PAGE>
-3-
3.0 Mutual Covenants:
3.1 Term:
The term of this agreement shall be for 1 year from the date
of execution and shall automatically renew each successive
year thereafter on the anniversary date of this agreement,
unless cancelled in writing by other party with 30 days
notice.
3.2 Breach:
In the event of breach of this agreement the offended party
shall provide written notification of such breach to the
offending party. The offending party shall then be provided 30
days to cure said breach. In the event such breach is not
cured, the offended party shall have the right to immediately
cancel this agreement.
3.3 Confidentiality:
All parties agree not to disclose the terms of this agreement
to any third party without the express written agreement of
the other parties.
All parties acknowledge that each may from time to time have
access to certain proprietary or non-public information of the
other, including but not limited to agreements, price
schedules, customer list, financial information, or other
business material marked "Proprietary" or "Confidential"
("Confidential Information"). Both parties agree that
Confidential Information shall be held and treated as
confidential and will be made available only on a need-to-know
basis to authorized employees. Confidential Information will
not be divulged to any third party, except as required by law,
government regulatory body or ruling of a court of competent
jurisdiction over the parties.
3.4 Non-Circumvention:
Both RESELLER and USMS agree that during the term of this
agreement, and for a period of 1 year thereafter, neither
RESELLER nor USMS shall solicit employees, agents, affiliates,
clients, distributors or members to end their business
relationship with the other party. RESELLER acknowledges that
USMS shall compensate RESELLER for each new client that
establishes services with USMS as provided by RESELLER.
RESELLER agrees not to solicit or recommend that these clients
end their relationship with USMS, or default on any obligation
to USMS, USMS' leasing companies or third party processors.
RESELLER acknowledges that such circumvention between USMS and
clients will cause monetary damages to USMS to which RESELLER
shall be liable.
3.5 Notice:
Any notice required pursuant to this Agreement shall be in
writing shall be deemed to have been given on the day
postmarked by the United States Postal Service, by certified
mail, return receipt requested, and postage prepaid, or in
overnight courier addressed as set forth below:
If to RESELLER: If to USMS:
__________________________ US Merchant Systems, Inc.
39899 Balentine Dr., Suite 210
Newark, CA 94560
Attention: Stuart Rosenbaum/CEO
<PAGE>
-4-
3.6 Assignment:
USMS reserves the right to assign this Agreement entirely and
solely to any subsidiary or affiliate of USMS if USMS deems
such assignment may properly enable better service or ease of
fulfillment of duties described herein.
RESELLER may assign this agreement to an affiliated party upon
the written consent of USMS, which shall not be unreasonably
withheld.
3.7 Waiver:
Failure on the part of any party to exercise any rights or
privileges granted to it or to insist upon the full
performance of all obligations assumed by the other party
shall not be construed as waiving such rights, privileges,
obligations or duties, or as creating any custom contrary
hereto. Any waiver of any right, privilege, duty or obligation
by either party shall not operate beyond its term.
3.8 Force Majeure:
All parties agree that all parties will not be liable for any
loss, expense or cost incurred by any party, any Affiliate or
customer or any other person or entity resulting from the
failure of any party to perform under this Agreement due to
causes beyond the reasonable control of either party,
including but not limited to war, fire, explosions, acts of
GOD, power failures, Government priorities, labor stoppage,
ill employees, supplier failure or delay, civil disorder, or
breakdown or malfunction of utilities, communication systems,
machinery, computers, transportation facilities or other
equipment of any nature: provided, however, that all parties
shall take all reasonable, practical and necessary steps in
such event or events to affect prompt resumption of
performance hereunder.
3.9 Severability:
Any finding by a court of competent jurisdiction of the
invalidity of any part of this Agreement shall not affect the
validity of any of the remaining provisions of this Agreement.
3.10 Venue:
The parties agree that any disputes pursuant to this agreement
shall be resolved through binding arbitration via the American
Arbitration Association in Alameda County, California.
3.11 Remedy:
All parties agree that in the event of a material breach of
this agreement which has not been rectified upon notification
in writing in 30 days, that the offended party or parties
shall be entitled to fair and proper remedy as may be
adjudicated. Such remedy shall include, but may not be limited
to amounts owed under this agreement, time and expenses of
collection, loss of potential revenue and reasonable attorneys
fees, and shall be determined by arbitration as per 3.8 above.
3.12 Entire Agreement:
This agreement constitutes the entire Agreement between the
parties for the purpose of RESELLER resale of USMS and
IntelliPAY products and services. No modification or amendment
to this Agreement shall be effective until set forth in
writing, executed by the parties and attached as an amendment
hereto.
<PAGE>
-5-
Agreed and accepted by all parties:
RESELLER: USMS:
______________________ Date: ________ _________________________ Date: ________
Schedule A: Cost of products and override on product sales.
Pacific Webworks (PWEB) will work on the following cost schedule for any self
generated sales (sales of USMS products to its own leads):
1. PWEB will pay USMS the sum of $599.00 on any IntelliPay Commerce System
sold, with or without Merchant Account.
Pacific Webworks (PWEB) will work on the following cost schedule for back-end
sales to the customer list of USMS:
1. PWEB will pay USMS the sum of $800.00 for each IntelliPay Commerce
System sold, with or without Merchant Account.
2. PWEB will pay USMS the sum of 10% of the gross sale amount of any
Webtool(s), component(s), and upgrade(s).
Authorized by RESELLER: Authorized by USMS:
______________________ Date: ________ _________________________ Date: ________
FORM OF
RESELLER AGREEMENT
This Reseller Agreement is made and entered into this 25th day of
August, 1999 by and between Pacific WebWorks, Inc. ("PWI"), a Utah corporation,
and U.S. Merchant Systems, Inc., a California corporation ("Reseller").
PWI hereby grants to Reseller and Reseller hereby accepts, subject to
the terms and conditions contained in this agreement, a non-exclusive,
non-transferable right in the Territory to: (a) market and demonstrate PWI
Software and Services to prospective Licensees. For the Reseller Fee contained
in Exhibit A, and other good and valuable consideration, the parties mutually
agree as follows:
1. Use of Software and Services Provided. PWI has created software known
as Visual WebTools, which is accessible via the Internet. Said software
shall hereinafter be referred to as "the Software". PWI will provide
licenses to use the Software to the Reseller's End Users for the
purpose of creating Internet projects for the fees set forth herein.
2. Pricing. Reseller agrees to pay PWI according to the Pricing Schedule,
which is attached hereto as Exhibit A and incorporated herein by
reference.
3. Payment Terms. The following payments terms shall apply:
a. Time of Payment. Reseller agrees to pay PWI the amounts due
within 30 business days after receipt of PWI's invoice.
b. Payment Not Contingent. The amounts due PWI from Reseller are
not contingent upon receipt of payment to Reseller by the End
User.
c. Payment in U.S. Funds. All amounts are payable in US Dollars
and all sales, withholding, other taxes and duties, if any,
shall be paid by Reseller.
4. Use of Purchase Agreement With End User. Reseller agrees to have each
End User sign a Purchase Agreement, which agreement has been provided
by PWI to Reseller.
5. Training of Reseller. PWI will provide Reseller with initial training
with respect to the use of the Software. Said training shall consist of
up to 2 days of on site training during the first three months after
the date of this Agreement as requested by Reseller.
6. Support of End User. PWI shall be responsible to provide all support
for the End Users solicited by Reseller. Support will be provided with
appropriate charges assessed to the End User. Until otherwise notified,
Reseller may represent to End Users that PWI will provide support, for
which charges will be assessed at the rate of $40 per call and that
such rates will prevail until End User is otherwise notified by PWI.
7. Use of Software. Reseller will use its best efforts to assure that the
End User will not use the Software in any way which violates any
international, federal, state or local laws, including without
limitation, laws dealing with copyrights, indecent material,
misrepresentation or other illegal or improper purpose. User shall not
send or allow anyone else to send any unsolicited e-mail messages or
advertising as relates to the Software, domain or web site of End User.
PWI reserves the right to terminate services for any End User, which is
breach of this paragraph.
<PAGE>
-2-
8. Sales Materials. PWI will make available any sales materials it has
developed relating to the Software. Pricing for Sales Materials is
contained in Exhibit A. If Reseller produces its own sales materials,
said materials shall first be approved by PWI in writing.
9. Independent Contractor. Reseller is an independent contractor and is
not authorized to make any representations or incur any obligations on
behalf of PWI without PWI's written permission.
10. Warranty Limitation.
1. Limitation. NO WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, ARE
MADE AS TO MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
OR ANY OTHER MATER WITH RESPECT TO THIS AGREEMENT, unless
specifically set forth herein.
2. Service. PWI makes no warranties as to the delivery,
completeness, accuracy or relevance of information provided to
End User through the use of the Software.
3. Reseller Indemnified. PWI will indemnify Reseller against any
damage claims by End Users resulting from the fault of PWI in
failing to reasonably provide access to PWI's servers with
regard to the use of the Software or to provide support
pursuant to this Agreement or the Purchase Agreement with End
User. PWI does not assume responsibility for service
interruptions, delays, non-delivery of information, or the End
Users inability to access PWI's servers which are beyond PWI's
control such as power outages, telephone line failures, acts
of God or similar circumstances. For service interruptions
which, are reasonably within PWI's control, PWI shall have 15
days to correct said service interruption without any recourse
from Reseller.
11. Payment for Internet Domain Name. The End User shall be responsible to
pay these charges upon signing of their Purchase Agreement.
12. Invoicing End User. Reseller shall be responsible to invoice and
collect amounts due from End Users.
13. Default. Any breach of the terms of this Agreement by Reseller or PWI,
which is not cured within thirty days after notice, shall constitute a
default under this Agreement.
<PAGE>
-3-
14. Term and Termination of Agreement.
a. Term. The term of this agreement shall commence on the
effective date and shall continue in force for a period not to
exceed one (1) year from such date ending on the 31st day of
May following the effective date, unless earlier terminated as
provided herein. This agreement shall renew in one year
increments from the effective date unless terminated by either
party in writing within 30 days of the renewal date.
b. Termination by either party. This contract can be immediately
terminated by either party in the event that the other party
ceases conducting business in the normal course, is insolvent,
petitioned into bankruptcy or becomes subject to any
proceeding for the protection of the rights of its creditors.
c. Termination for cause. Upon default by Reseller, PWI may elect
to terminate this Agreement upon ten days written notice and
shall be entitled to collect any unpaid amounts that are due
pursuant to this Agreement. In addition, after default, PWI
shall be entitled to any other remedies allowed under Utah
law. In the event this Agreement is terminated, PWI can take
over and/or transfer and service the End Users that were
solicited by Reseller and enter into new Purchase Agreements.
However, all commissions and residuals, as those terms are
defined herein, which would be due Reseller based upon fees
and charges paid by End Users who have signed Purchase
Agreements prior to the termination of this Agreement, shall
not be forfeited by Reseller upon termination of this
Agreement but shall be due within 60 days of termination. PWI
will pay Reseller its commissions and residuals after receipt
of fees from any End User to which Reseller is entitled to
commissions or residuals, less a twenty five percent fee for
servicing said accounts after default. For purposes of this
Agreement, the following definitions shall apply:
d. Commissions. The term "commission" as used herein shall mean
the entire purchase price and fees paid by End User under the
Purchase Agreement less the amount owed to PWI by Reseller
under the price schedule attached hereto as Exhibit A.
e. Residuals. The term "residuals" shall mean the entire purchase
price and all fees paid by End User in any year subsequent to
the first year after execution of a Purchase Agreement, less
amounts owed to PWI by Reseller under the price schedule
attached hereto as Exhibit A.
<PAGE>
-4-
15. Indemnification. Reseller agrees to indemnify and hold PWI harmless
against, and in respect of, any and all claims, losses, expenses,
costs, obligations, and liabilities they may incur by reason of
Reseller's failure to perform any of its warranties, guaranties,
commitments, or covenants set forth in this Agreement. If a party shall
bring suit to enforce this indemnification provision, the party making
the indemnification shall be liable for all costs and expenses,
including fees of attorneys, incurred in prosecuting such action (or
any appeal thereto), and such costs and expenses shall be included in
any judgment that may be rendered.
16. Arbitration. In the event of a dispute under this Agreement, the
parties agree that any dispute shall be resolved by arbitration
according to the rules of the American Arbitration Association. The
arbitration hearing shall be held in Salt Lake City, Utah. One
arbitrator shall be selected. The costs of arbitration shall be equally
divided between the parties. Each party shall pay their own attorney's
fees.
17. Dealer Network. Reseller may establish a network of dealers, which
shall have the right to resell the Software to End Users. PWI agrees
not to directly solicit any party while they are actively reselling the
Software for Reseller.
18. Retail Price Stipulations. Reseller agrees to sell the Software
according to the price schedule attached hereto as Exhibit A. Said
price schedule may be revised by PWI at its sole discretion and
redistributed to its Resellers. PWI agrees to provide the same price
schedule to all of its Resellers in Salt Lake County so as not to
create an unfair market advantage for any Reseller.
19. Use of Name. Reseller may represent themselves as an authorized dealer
of PWI. Reseller agrees to use PWI's name, logo, slogan or anything,
which represents the corporate image of PWI or the Software subject to
approval by PWI. Reseller agrees to represent the Software and its
capabilities accurately and correctly and agrees not to make false
claims or representations as to the same.
20. Miscellaneous.
a. Notice. All demands and notices to be given hereunder, if any,
shall be personally delivered or sent by registered mail
addressed to the respective parties at their postal addresses
as of the date of this Agreement or to such other address as
each may hereafter designate in writing.
b. Successors. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of
the respective parties hereto, their legal representatives,
successors and assigns.
c. Entire Agreement. This Agreement constitutes the entire
agreement and understanding between the parties and supersedes
all prior agreements or understandings with respect to the
subject matter of this Agreement.
d. Amendment. This Agreement may not be altered or amended except
by a subsequent written agreement executed by all of the
parties hereto.
e. Governing Law. The terms of the Agreement shall be governed by
and construed in accordance with Utah law. The parties agree
that any legal proceedings relating to the subject matter of
this agreement shall be brought exclusively in the State of
Utah. The parties represent to each other that the Agreement
to bring legal proceedings exclusively in the State of Utah
will not place a serious inconvenience or be unfair or
unreasonable to any of the parties hereto.
f. Severability. If any of the terms and conditions of this
Agreement shall be declared invalid by a tribunal or entity
having jurisdiction thereof, the application of such
provisions to parties or circumstances other than those as to
which it is held invalid or unenforceable shall not be
affected thereby, and each of them not so declared invalid or
unenforceable shall be valid and be enforced to the fullest
extent permitted by law.
g. Place of Payment. The obligation to make payment as provided
herein shall be made in Salt Lake County, State of Utah.
h. Interest. In the event any money obligation described herein
is not paid when due, interest shall accrue (both before and
after judgment) thereon at the Annual Percentage Rate of
eighteen percent (18%) per annum.
i. Authorization. The individuals who have signed this Agreement
represent and warrant that they are duly authorized to execute
this Agreement, in either their individual or representative
capacity as indicated, and that this Agreement is enforceable
according to its terms.
j. Assignment. No interests or obligations under this Agreement
are assignable without the written consent of all parties. If
such consent is given, no assignment shall relieve any party
from the performance of all of the covenants and conditions
set forth herein.
22. Sale of PWI. In the event that PWI is sold, this Agreement shall remain
in full force and effect.
<PAGE>
-5-
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year above indicated.
Pacific WebWorks, Inc.
___________________________
Authorized Officer
U.S. Merchant Systems Inc.
___________________________
Authorized Officer
<PAGE>
-6-
Exhibit A
Pacific WebWorks, Inc.
US Merchant Systems
Complete E-Commerce Package Pricing
Confidential
Package Costs
Retail Package Wholesale Pricing
WebWizard - Retail $100.00
WebShopper - Retail $100.00
Intellipay with e-check $399.00
E-commerce CD-ROM $60.00
Express Package USMS Regular
WebWizard - Express $250.00 $300.00
WebShopper - Express $250.00 $300.00
Upgrade of Choice $100.00 $100.00
Intellipay with e-check $399.00
E-commerce CD-ROM $60.00
Pro Package USMS Regular
WebWizard - Pro $500.00 $625.00
WebShopper - Pro $300.00 $350.00
WebChannels $100.00 $100.00
WebProfiler $100.00 $100.00
WebStats $100.00 $100.00
Intellipay with e-check $399.00
E-commerce CD-ROM $60.00
Options
Domain Name Registration $50.00
Search Engine Submission $50.00
WebChannels $100.00
WebProfiler $100.00
WebStats $100.00
PROMISSORY NOTE
Principal: $250,000.00 Salt Lake City, Utah
July 21, 1999
On or before July 31, 2000, we promise to pay to the order of Capital
Communications, Inc. or successors and assigns the sum of Two Hundred Fifty
Thousand Dollars ($250,000) together with interest at the rate of 10% per annum.
Principal and interest are due on or before maturity date. This note is
secured by the accounts receivable of Pacific Webworks, Inc., a Nevada
corporation. The security document will be a UCC-1 filing with the State of Utah
and the State of Nevada.
If any default be made in the payment of principal or interest, then,
without presentment, notice, or demand the entire unpaid principal sum thereof
and all accrued interest thereon shall, at the holder's option, become
immediately due and payable.
The maker and any co-makers, endorsers, and guarantors of this
Promissory Note further agree to pay all costs of collection, including any
reasonable attorney's fees incurred in case payment shall not be made as herein
provided.
Until this note is paid in full, the undersigned will not encumber or
sell the collateral without express written permission of Capital
Communications, Inc. or its successors.
Dated this 21st day of July, 1999.
Pacific Webworks, Inc.
By: /S/ Christian Larsen
----------------------------
Title: President/CEO
By: /S/ Mark Jensen
----------------------------
Title: Chief Operations Officer
<TABLE> <S> <C>
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<CIK> 0001086303
<NAME> PACIFIC WEBWORKS, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1.0
<CASH> 140,141
<SECURITIES> 0
<RECEIVABLES> 46,018
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 186,159
<PP&E> 134,954
<DEPRECIATION> 23,660
<TOTAL-ASSETS> 307,036
<CURRENT-LIABILITIES> 20,985
<BONDS> 0
0
0
<COMMON> 19,840
<OTHER-SE> 275,211
<TOTAL-LIABILITY-AND-EQUITY> 307,036
<SALES> 39,130
<TOTAL-REVENUES> 39,130
<CGS> 0
<TOTAL-COSTS> 543,862
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (504,732)
<INCOME-TAX> 0
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